<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
NOTE EXCHANGE ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GLOBIX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
DELAWARE 7373 13-3781263
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
139 CENTRE STREET
NEW YORK, NEW YORK 10013
(212) 334-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARC H. BELL
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
GLOBIX CORPORATION
139 CENTRE STREET
NEW YORK, NEW YORK 10013
(212) 334-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
ARNOLD N. BRESSLER, ESQ.
MILBERG WEISS BERSHAD HYNES & LERACH LLP
ONE PENNSYLVANIA PLAZA
NEW YORK, NEW YORK 10119
(212) 594-5300
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED
TITLE OF CLASS AMOUNT TO BE OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
12 1/2 Senior Notes due 2010...... $600,000,000 100% $600,000,000 $158,400
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(1) Estimated solely for the purpose of calculating the registration fee
calculated pursuant to Rule 457(f) under the Securities Act of 1933 as the
market value of the securities to be canceled in the exchange.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 29, 2000
PROSPECTUS
[GLOBIX LOGO]
EXCHANGE OFFER FOR $600,000,000 12 1/2% SENIOR NOTES DUE 2010
TERMS OF EXCHANGE OFFER
EXCHANGE OFFER
We will exchange new notes that are registered under the Securities Act for
old notes that were sold on February 8, 2000.
All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged.
We will receive no proceeds from the exchange offer.
EXCHANGE OFFER EXPIRATION
, 2000 at 5:00 p.m., New York City time.
OLD NOTES
On February 8, 2000, we issued and sold $600,000,000 of 12 1/2% Senior
Notes due 2010.
If you tender your old notes in the exchange offer, interest will cease to
accrue before your new notes are issued. If you do not tender in the exchange
offer, your old notes will continue to be subject to the same terms and
restrictions except that we will not be required to register your old notes
under the Securities Act.
Globix Corporation
139 Centre Street
New York, New York 10013
(212) 334 - 8500
NEW NOTES
Identical to the old notes except that the new notes will be registered
under the Securities Act.
- Maturity: February 1, 2010.
- Change of Control: You can require us to purchase your notes at 101% of
the principal amount.
- Interest: Paid semiannually on February 1 and August 1 of each year,
starting August 1, 2000.
- Redemption by Globix: Anytime on or after February 1, 2005, except that
redemption for a portion of the notes may be made at any time prior to
February 1, 2003 with the Net Cash Proceeds of one or more sales of
Capital Stock, other than Disqualified Stock.
- Ranking: The new notes will be general senior unsecured obligations,
ranking:
- pari passu in right of payment with all our existing and future
unsecured and unsubordinated indebtedness;
- senior in right of payment to all of our existing and future
subordinated indebtedness, if any; and
- subordinated to our secured indebtedness and structurally subordinated
to all indebtedness of our subsidiaries.
Investment in the notes to be issued in the exchange offer involves risks.
See the risk factors section beginning on page 10.
This prospectus and the accompanying letter of transmittal are first being
mailed to holders of outstanding notes on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Documents Incorporated by Reference... ii
Summary............................... 1
Risk Factors.......................... 10
Disclosure Regarding Forward-Looking
Statements.......................... 17
Use of Proceeds....................... 18
Capitalization........................ 19
Selected Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 29
Management............................ 38
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PAGE
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Certain Transactions.................. 46
Principal Stockholders................ 47
Description of Other Indebtedness..... 50
The Exchange Offer.................... 51
Description of the Notes.............. 60
Certain U.S. Federal Income Tax
Consequences to Non-U.S. Persons.... 94
Plan of Distribution.................. 96
Where You Can Find More Information... 96
Legal Matters......................... 96
Experts............................... 96
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
i
<PAGE> 4
DOCUMENTS INCORPORATED BY REFERENCE
This prospectus incorporates business and financial information about
Globix that is not included in or delivered with this prospectus. We are
incorporating by reference in this prospectus the following documents which we
filed with the commission:
- Our current report on Form 8-K filed February 14, 2000.
We are also incorporating by reference in this prospectus all reports and
other documents that we file after the date of this prospectus pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Act of 1934, prior to the
termination of the offering of securities under this prospectus. These reports
and documents will be incorporated by reference in and considered to be part of
this prospectus as of the date of filing of the reports and documents.
Any statement contained in this prospectus or in a document which is
incorporated by reference in this prospectus will be modified or superseded for
purposes of this prospectus to the extent that a statement in any document that
we file after the date of this prospectus that also is incorporated by reference
in this prospectus modifies or supersedes the prior statement. Any statement so
modified or superseded will not, except as so modified or superseded, constitute
a part of this prospectus.
This prospectus incorporates by reference documents which are not presented
in this prospectus or delivered to you with it. You may request, and we will
send to you, without charge, copies of these documents, other than exhibits to
these documents, which we will send to you for a reasonable fee. Requests should
be directed to:
Globix Corporation
139 Centre Street
New York, New York 10013.
Attn: Secretary
(212) 334-8500
In order to assure timely delivery of the requested materials before the
expiration of the exchange offer, any request should be made prior to
, 2000.
ii
<PAGE> 5
SUMMARY
This summary highlights some information from this prospectus. Because this
is only a summary, it does not contain all of the information that may be
important to you. Therefore, you should also read the entire prospectus,
especially "Risk Factors," the consolidated financial statements and the notes
to those statements and the documents we have referred you to.
GLOBIX CORPORATION
BUSINESS
We are a leading full-service provider of sophisticated end-to-end Internet
solutions to businesses. Our solutions include:
- secure and fault-tolerant Internet data centers;
- high performance network connectivity to the Internet; and
- hosting and support for complex Internet-based applications.
These three major elements of our total Internet solution combine to
provide our customers with the ability to create, operate and scale their
increasingly complex Internet operations in a cost efficient manner.
Our customers primarily use our products and services to maintain complex
computer equipment in a secure, fault-tolerant environment with connectivity to
a high-speed, high-capacity, direct link to the Internet and to support complex
Internet applications. We currently offer our products and services from our new
SuperPOP facilities in New York City, London and Santa Clara, California. Our
teams of account managers, computer system and network engineers and customer
support specialists are located at each SuperPOP. Our strong local market
presence enables us to evaluate the needs of our customers and quickly respond
with tailored solutions. We also provide our customers the ability to outsource
the systems administration and technical management of their Internet presence.
Our products are flexible and scaleable, allowing us to modify the size and
breadth of the services we provide. We believe that our ability to offer a broad
range of Internet products and services, combined with our local sales and
support professionals and high performance Internet data center facilities and
network, differentiates us from our competitors.
FACILITIES AND NETWORK EXPANSION
Each of our newly opened SuperPOP facilities features:
- a high performance Internet data center with multiple, redundant,
high-capacity fiber connections, uninterruptable power supplies with
back-up power generation, a dry fire suppression system, raised flooring
and environmental controls;
- a network operations center, which provides 24 hour a day, 7 day a week
monitoring of our network and our customers' web sites; and
- on-site customer support, sales and marketing, and administration of
Internet software and hardware, including servers and routers.
Our addition of new SuperPOP facilities during 1999 increased our total
Internet data center capacity from 2,000 square feet to 63,000 square feet,
significantly increasing the space we have available to house servers and
routers for hosting web sites and co-location.
We have established a network to significantly increase data transmission
speed and capacity, improve reliability and reduce data transmission costs. This
network connects our points of presence or network access points in Chicago,
Washington D.C., Amsterdam, Frankfurt, Geneva, Milan, Paris and Stockholm to our
SuperPOPs. We are also seeking to establish SuperPOPs and other facilities in
other major business
1
<PAGE> 6
centers in the United States and abroad. We will expand our network to connect
these SuperPOPs and other facilities when they are established.
MARKET OPPORTUNITY
According to estimates by independent research firms, a significant market
opportunity exists to provide Internet products and services to businesses. We
believe we are well positioned to take advantage of this opportunity. As an
example, International Data Corp. estimates that U.S. value-added Internet
service revenues, such as electronic commerce and security services, will
increase from approximately $3.0 billion in 1998 to approximately $12.9 billion
in 2003. Forrester Research estimates that:
- U.S. enterprises online will increase from approximately 1.8 million in
1998 to approximately 4.3 million in 2003; and
- U.S. managed web site hosting revenues will increase from less than $1.0
billion in 1998 to over $14.0 billion in 2003.
Dataquest/Gartner Group estimates that:
- European corporate Internet access revenues will increase from
approximately $1.7 billion in 1998 to approximately $9.1 billion in 2003;
and
- worldwide corporate Internet access revenues will increase from
approximately $6.9 billion in 1998 to approximately $22.7 billion in
2003.
The rapidly growing need for Internet access and other Internet products
and services has resulted in a highly fragmented industry with the proliferation
of Internet service providers operating worldwide as well as within the United
States. These ISPs primarily consist of large national and global ISPs and
numerous smaller ISPs. Large national and global ISPs generally focus on
Internet access and rely on indirect sales, telemarketing and remote network
operation centers to serve their customers. In addition, these ISPs typically do
not offer a full range of services. Smaller local or regional ISPs typically
focus on serving their local market and lack the resources to provide and
support a full range of Internet products and services. Accordingly, we believe
that the needs of businesses for comprehensive Internet products and services
are not being met by the larger national and global or smaller local and
regional ISPs that constitute most of our competitors.
CUSTOMERS
We have established a diversified base of customers in a variety of
Internet-intensive industries, such as media and publishing, financial services,
retail, healthcare and technology. Since we initiated Internet services in
December 1995, our customer base has grown to over 1,600 business customer
accounts, including Acclaim Entertainment, Ebookers.com, Edgar-Online Inc.,
GiftCertificates.com, Major League Soccer, Microsoft, New York Post, S3/Diamond
Multimedia and Times Square 2000.
GROWTH STRATEGY
Our objective is to become the leading provider of sophisticated Internet
solutions to businesses in key global markets. To achieve this objective, we
intend to:
- continue to invest extensively in our infrastructure by establishing new
SuperPOPs and points of presence strategically located near our
customers, and by expanding our network;
- expand our product and service offerings;
- sell additional products and services to existing customers;
- enhance the Globix brand name in our target markets; and
- make investments in, or acquire, complementary businesses.
2
<PAGE> 7
RECENT DEVELOPMENTS
Stock Split
On January 10, 2000, Globix announced a two-for-one stock split of its
outstanding shares of common stock, which was paid on January 31, 2000. All
common stock share references contained in this prospectus reflect this stock
split.
Tender Offer and Sale of Senior Notes
On February 8, 2000, Globix commenced a tender offer to purchase for cash
any and all of its outstanding 13% senior notes due 2005, $160 million in
principal amount. The purchase price in the tender offer was 106.5% of the
principal amount, plus accrued and unpaid interest. Concurrent with the offering
of the old notes, Globix received the consent of the beneficial holders of a
majority of the outstanding 13% senior notes to amend the indenture to eliminate
most of the restrictive covenants governing the 13% senior notes. A supplemental
indenture reflecting these amendments to the indenture was executed on February
4, 2000.
On February 8, 2000, we received net proceeds of approximately $582.0
million (exclusive of transaction costs) from the issuance and sale of the old
notes.
The tender offer closed in March 2000 and 100% of the $160.0 million
principal amount 13% senior notes were tendered to Globix for purchase. Globix
purchased these 13% senior notes with $170.4 million from the net proceeds from
the sale of the old notes.
------------------------
As of , 2000, our equity market capitalization was approximately
$ billion based upon a closing price of $ per share and the number of
shares of common stock issued and outstanding on that date.
Our principal executive offices are located at 139 Centre Street, New York,
New York 10013. Our telephone number is (212) 334-8500.
The name "Globix" and the Globix logo are trademarks and service marks of
Globix. Each trademark, trade name or service mark of any other company
appearing in this prospectus belongs to its respective owner.
3
<PAGE> 8
THE EXCHANGE OFFER
ISSUER.......................... Globix Corporation
SECURITIES OFFERED.............. $600.0 million in aggregate principal amount
of 12 1/2% Senior Notes due 2010. The terms
of the new notes and the old notes are
identical except for transfer restrictions
and registration rights relating to the old
notes that will not apply to the new notes.
The old notes and the new notes are
collectively referred to as notes.
ISSUANCE OF OLD NOTES........... $600.0 million aggregate principal amount of
12 1/2% Senior Notes due 2010 were issued on
February 8, 2000 to Lehman Brothers Inc.,
Chase Securities Inc., Credit Suisse First
Boston Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Salomon Smith
Barney Inc. and ING Barings LLC, which placed
the old notes with qualified institutional
buyers and to buyers in offshore transaction
in reliance on Regulation S under the
Securities Act.
THE EXCHANGE OFFER.............. We are offering to exchange $1,000 principal
amount of new notes for each $1,000 principal
amount of old notes. Old notes may only be
exchanged in $1,000 principal amount
increments. There are $600.0 million
aggregate principal amount of old notes
outstanding.
CONDITIONS TO THE EXCHANGE
OFFER........................... The exchange offer is not conditioned upon
any minimum principal amount of old notes
being tendered for exchange. However, the
exchange offer is subject to customary
conditions, which may be waived by us. See
"The Exchange Offer -- Conditions to the
Exchange Offer."
PROCEDURES FOR TENDERING........ If you wish to tender your old notes in the
exchange offer, you must complete and sign
the letter of transmittal for the notes
according to the instructions contained in
this prospectus. You must then mail, fax or
hand deliver the letter of transmittal,
together with any other required documents,
to the exchange agent, either with the old
notes to be tendered or in compliance with
the specified procedures for guaranteed
delivery of old notes. You should allow
sufficient time to ensure timely delivery.
Some brokers, dealers, commercial banks,
trust companies and other nominees may also
effect tenders by book-entry transfer. If you
own old notes registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee, you are urged to
contact that person promptly if you wish to
tender old notes in the exchange offer.
Letters of transmittal and certificates
representing the old notes should not be sent
to Globix. These documents should be sent
only to the exchange agent. Questions
regarding how to tender and requests for
information should also be directed to the
exchange agent. If you hold old notes through
The Depository Trust Company and wish to
accept the exchange offer, you must do so
pursuant to the book-entry transfer
facility's procedures for book entry transfer
(or other applicable procedures), all in
accordance
4
<PAGE> 9
with this prospectus and the letter of
transmittal. See "The Exchange Offer
Procedures for Tendering Old Notes."
EXPIRATION DATE; WITHDRAWAL..... The exchange offer will expire on the earlier
of 5:00 p.m., New York City time on
, 2000 or the date when all old
notes have been tendered, or a later date and
time to which it may be extended. However, it
may not be extended beyond ,
2000. We will accept for exchange any and all
old notes that are validly tendered in the
exchange offer prior to 5:00 p.m., New York
City time, on the expiration date. The tender
of old notes may be withdrawn at any time
prior to the expiration date. Any old note
not accepted for exchange for any reason will
be returned without expense to the tendering
holder as promptly as practicable after the
expiration or termination of the exchange
offer. The new notes issued in the exchange
offer will be delivered promptly following
the expiration date. See "The Exchange
Offer -- Terms of the Exchange Offer; Period
for Tendering Old Notes" and "-- Withdrawals
of Tenders."
GUARANTEED DELIVERY
PROCEDURES...................... If you wish to tender your old notes and (1)
your old notes are not immediately available
or (2) you cannot deliver your old notes
together with the letter of transmittal to
the exchange agent prior to the expiration
date, you may tender your old notes according
to the guaranteed delivery procedures
contained in the letter of transmittal. See
"The Exchange Offer -- Procedures for
Tendering Old Notes -- Guaranteed Delivery
Procedures."
TAX CONSIDERATIONS.............. For U.S. federal income tax purposes, the
exchange of old notes for new notes should
not be considered a sale or exchange or
otherwise a taxable event to the holders of
notes.
USE OF PROCEEDS................. We will receive no proceeds from the exchange
offer.
APPRAISAL RIGHTS................ Holders of old notes will not have
dissenters' rights or appraisal rights in
connection with the exchange offer.
EXCHANGE AGENT.................. HSBC Bank USA is serving as exchange agent in
connection with the exchange offer for the
notes.
RESALES OF NEW NOTES............ Based on an interpretation by the Securities
and Exchange Commission set forth in
no-action letters issued to third parties, we
believe that you may resell or otherwise
transfer new notes issued in the exchange
offer in exchange for old notes without
restrictions under the federal securities
laws. However, there are exceptions to this
general statement. You may not freely
transfer the new notes if:
- you are an affiliate of Globix;
- you did not acquire the new notes in the
ordinary course of your business;
- you have engaged in, intend to engage in,
or have an arrangement or understanding
with any person to participate in the
distribution of the new notes; or
5
<PAGE> 10
- you are a broker-dealer who acquired the
old notes directly from us.
Any holder subject to any of the exceptions
above and each participating broker-dealer
that receives new notes for its own account
in the exchange offer in exchange for old
notes that were acquired as a result of
market making, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the new notes.
CONSEQUENCES OF NOT EXCHANGING
THE OLD NOTES................... If you do not tender your old notes or your
old notes are not properly tendered, the
existing transfer restrictions will continue
to apply. The old notes are currently
eligible for sale pursuant to Rule 144A
through the Portal Market. Because we
anticipate that most holders will elect to
exchange old notes for new notes due to the
absence of restrictions on the resale of new
notes under the Securities Act, we anticipate
that the liquidity of the market for any old
notes remaining after the consummation of the
exchange offer will be substantially limited.
See "Risk Factors -- There could be negative
consequences to you if you do not exchange
your old notes for new notes" and "The
Exchange Offer -- Consequences of Failure to
Exchange Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and the old notes are identical in all respects,
except that the terms of the new notes do not include the transfer restrictions
and registration rights relating to the old notes. The old notes and the new
notes are referred to collectively as the notes.
The new notes will bear interest from the later of February 8, 2000 or the
most recent date to which interest has been paid on the old notes. Accordingly,
registered holders of new notes on the relevant record date for the first
interest payment date following the completion of the exchange offer will
receive interest accruing from the later of February 8, 2000 or the most recent
date on which interest has been paid. Old notes accepted for exchange will cease
to accrue interest from and after the date of completion of the exchange offer.
Holders of old notes whose old notes are accepted for exchange will not receive
any payment in respect of interest on the old notes otherwise payable on any
interest payment date that occurs on or after completion of the exchange offer.
NOTES OFFERED................... $600.0 million aggregate principal amount of
12 1/2% Senior Notes due 2010.
MATURITY DATE................... February 1, 2010.
INTEREST PAYMENT DATES.......... February 1 and August 1 of each year,
commencing August 1, 2000.
RANKING......................... The notes will be general senior unsecured
obligations, ranking pari passu in right of
payment with all of our existing and future
unsecured and unsubordinated indebtedness and
senior in right of payment to all of our
existing and future subordinated
indebtedness. The notes will be effectively
subordinated to all of our secured
indebtedness and structurally subordinated to
all indebtedness of our subsidiaries. As of
December 31, 1999, we had approximately $4.4
million of indebtedness to which holders of
notes would have been
6
<PAGE> 11
effectively subordinated and $30.4 million of
restricted cash pledged as security for the
benefit of the holders of our 13% senior
notes. In addition, as of December 31, 1999,
the aggregate amount of liabilities of our
subsidiaries was approximately $1.9 million.
As a result of the purchase of 100% of the
$160.0 million in principal amount of our
outstanding 13% senior notes pursuant to the
tender offer, the $30.4 million of restricted
cash has been released from the escrow
account. These amounts do not include
indebtedness of $21.0 million, secured by a
first mortgage on the building at 139 Centre
Street, incurred on January 25, 2000.
OPTIONAL REDEMPTION............. Globix may redeem the notes in whole or in
part, at any time on or after February 1,
2005, at the redemption prices set forth in
this prospectus, plus accrued and unpaid
interest, and liquidated damages, if any, to
the date of redemption.
Before February 1, 2003, Globix may redeem up
to 35% of the notes with the net proceeds of
sales of our equity securities received by,
or invested in, Globix at 112.5% of the
principal amount thereof, plus accrued and
unpaid interest, and liquidated damages if
any, to the redemption date; provided that at
least 65% of the aggregate original principal
amount of the notes remains outstanding
thereafter.
CHANGE OF CONTROL............... Following a "change of control," we will be
required to make an offer to purchase all
notes at a purchase price of 101% of their
principal amount, plus accrued and unpaid
interest, plus liquidated damages, if any. We
may not have available sufficient funds or
the financial resources necessary to satisfy
our obligations to repurchase the notes and
other debt that may become repayable upon a
change of control.
CERTAIN COVENANTS............... The indenture contains covenants that, among
other things, limit our ability to:
- incur additional indebtedness;
- pay dividends on, redeem or repurchase our
capital stock;
- make investments;
- create certain liens;
- sell assets;
- in the case of restricted subsidiaries,
guarantee indebtedness;
- engage in transactions with affiliates; and
- consolidate, merge or transfer all our
assets on a consolidated basis.
These covenants are subject to a number of
important exceptions and qualifications.
The interest rate on the notes will increase
if Globix does not comply with its
obligations under the registration rights
agreement.
For additional information concerning the notes, see "Description of the Notes."
7
<PAGE> 12
SUMMARY FINANCIAL DATA
Set forth below is our financial data for the nine months ended September
30, 1995 and the years ended September 30, 1996, 1997, 1998 and 1999 which are
derived from our audited consolidated financial statements. We changed our
fiscal year end from December 31 to September 30 in 1995. Consequently, the 1995
fiscal year consisted of nine months. Also set forth below is our consolidated
financial data as of December 31, 1999 and for the three months ended December
31, 1998 and December 1999 which is derived from our unaudited interim financial
statements. In our opinion, these unaudited financial statements have been
prepared on the same basis as our audited financial statements and reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of our results of operations and financial position for these
periods. Interim periods are not necessarily indicative of results for any
future period. The following summary consolidated financial data should be read
in conjunction with the selected financial data, the consolidated financial
statements and the notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<TABLE>
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THREE MONTHS
NINE MONTHS ENDED
ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, --------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------------- ------- ------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue............................ $8,738 $10,374 $17,400 $ 20,595 $ 33,817 $ 5,929 $ 16,145
Operating costs and expenses:
Cost of revenues................. 7,292 8,599 13,699 13,322 22,184 3,702 10,056
Selling, general and
administrative................. 1,247 3,244 6,036 10,696 36,495 5,566 19,695
Depreciation and amortization.... 68 219 675 1,310 6,329 507 3,357
------ ------- ------- -------- -------- ------- --------
Total operating costs and
expenses..................... 8,607 12,062 20,410 25,328 65,008 9,775 33,108
------ ------- ------- -------- -------- ------- --------
Income (loss) from operations...... 131 (1,688) (3,010) (4,733) (31,191) (3,846) (16,963)
Interest and financing expense..... (73) (356) (177) (8,376) (18,386) (4,917) (5,469)
Interest income.................... -- 121 72 1,953 6,192 944 1,621
Net income (loss).................. $ 39 $(1,893) $(3,115) $(11,156) $(43,385) $(7,819) $(20,811)
====== ======= ======= ======== ======== ======= ========
OTHER FINANCIAL DATA:
EBITDA(1).......................... $ 199 $(1,469) $(2,335) $ (3,423) $(24,862) $(3,339) $(13,606)
Capital expenditures............... $ 150 $ 1,955 $ 1,542 $ 23,270 $ 83,434 $22,320 $ 10,031
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL($) AS ADJUSTED($)(2)(3)
--------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ 164,951 603,999
Restricted cash and investments............................. 37,677 7,229
Working capital............................................. 154,226 589,807
Total assets................................................ 357,717 781,902
Long-term debt and capital lease obligations................ 162,526 604,360
Redeemable convertible preferred stock...................... 76,281 76,281
Stockholders' equity........................................ 86,177 68,528
</TABLE>
- ---------------
(1) EBITDA is earnings from operations before interest, taxes, depreciation and
amortization. EBITDA is included because management believes that certain
investors find it a useful tool for measuring a company's ability to service
its debt. However, EBITDA does not represent cash flow from operations, as
defined by generally accepted accounting principles. In addition, EBITDA
should not be considered a substitute for net income or net
8
<PAGE> 13
loss as an indicator of our operating performance or cash flow or as a
measure of liquidity. This data should be examined in conjunction with our
consolidated financial statements and notes to the financial statements
included elsewhere in this prospectus. EBITDA as presented may not be
comparable to similarly titled measures reported by other companies because
not all companies calculate EBITDA in an identical manner.
(2) The as adjusted data gives effect to the offering of the notes, after
deduction of underwriting discounts and estimated offering expenses. It also
gives effect to the purchase of all of our outstanding 13% senior notes with
$170.4 million from the net proceeds from the sale of the old notes, the
release of the $30.4 million of restricted cash previously held in escrow
for the benefit of the holders of the 13% senior notes and the write-off of
unamortized debt discount and issuance costs associated with those notes
which has been recorded as an extraordinary item in connection with the
completion of the tender offer.
(3) The as adjusted data does not include a $21.0 million loan, secured by a
first mortgage on the building at 139 Centre Street housing our New York
SuperPOP, entered into on January 25, 2000.
9
<PAGE> 14
RISK FACTORS
Holders of old notes should carefully consider the information set forth
under the caption "Risk Factors" and all other information set forth in this
prospectus before tendering their old notes in the exchange offer. The risk
factors set forth in this prospectus, other than "Risk Factors -- There could be
negative consequences to you if you do not exchange your old notes for new
notes," are generally applicable to the old notes as well as the new notes.
THERE COULD BE NEGATIVE CONSEQUENCES TO YOU IF YOU DO NOT EXCHANGE YOUR OLD
NOTES FOR NEW NOTES.
Any old notes tendered and exchanged in the exchange offer will reduce the
aggregate principal amount of old notes outstanding. Because we anticipate that
most holders will elect to exchange their old notes for new notes due to the
absence of most restrictions on the resale of new notes, we anticipate that the
liquidity of the market for any old notes remaining outstanding after the
exchange offer may be substantially limited. Following the consummation of the
exchange offer, holders who did not tender their old notes generally will not
have any further registration rights under the registration rights agreement,
and these old notes will continue to be subject to restrictions on transfer. The
old notes are currently eligible for sale under 144A through the Portal Market.
As a result of making the exchange offer, we will have fulfilled our
obligations under the registration rights agreement. Holders who do not tender
their old notes generally will not have any further registration rights or
rights to receive the liquidated damages specified in the registration rights
agreement for our failure to register the new notes.
Any old notes that are not exchanged for new notes will remain restricted
securities. Accordingly, the old notes may be resold only:
- to Globix or one of its subsidiaries;
- to a qualified institutional buyer;
- to an institutional accredited investor;
- to a party outside the United States under Regulation S under the
Securities Act;
- under an exemption from registration provided by Rule 144 under the
Securities Act; or
- under an effective registration statement.
AS A RESULT OF OUR LARGE OUTSTANDING DEBT OBLIGATIONS, WE HAVE SIGNIFICANT
ONGOING DEBT SERVICE REQUIREMENTS WHICH MAY ADVERSELY AFFECT OUR FINANCIAL AND
OPERATING FLEXIBILITY.
As of December 31, 1999, as adjusted to give effect to the sale of the
notes and the purchase of all $160.0 million in principal amount of our
outstanding 13% senior notes pursuant to the tender offer, our total
indebtedness would have been approximately $604.4 million. This substantial
leverage may have important consequences for us, including the following:
- a significant portion of our cash flow from operations will be dedicated
to servicing our debt obligations and will not be available for other
business purposes;
- the terms and conditions of our indebtedness limit our flexibility in
planning for and reacting to changes in our business;
- our ability to obtain additional financing in the future for working
capital, capital expenditures, and other purposes may be substantially
impaired; and
- our substantial leverage may make us more vulnerable to economic
downturns and competitive pressures.
Our ability to meet our debt service obligations, including with respect to
the notes, and to reduce our total indebtedness depends on our future operating
performance. Our future operating performance will depend on our ability to
expand our business operations by building new facilities, extending our
enhanced network and expanding our product and service offerings, which we
anticipate will require additional financing. In addition, our future operating
performance will depend on economic, competitive, regulatory,
10
<PAGE> 15
legislative and other factors affecting our business that are beyond our
control. If we are unable to expand our business as planned, we may not be able
to service our outstanding indebtedness, including the notes.
YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES MAY BE JUNIOR TO ALL OF OUR FUTURE
BORROWINGS.
The notes are effectively subordinated to all secured indebtedness, if any,
and all indebtedness of our subsidiaries. The covenants governing the notes
limit our ability and the ability of our subsidiaries to incur additional debt.
However, these limitations are subject to a number of exceptions, and there can
be no assurances that we may not incur significant additional debt in the
future, including debt to which the holders of the notes may be effectively
subordinated. As of December 31, 1999, we had approximately $4.4 million of
indebtedness to which holders of notes would have been effectively subordinated
and $30.4 million of restricted cash pledged as security for the benefit of the
holders of our 13% senior notes. In addition, as of December 31, 1999, the
aggregate amount of liabilities of our subsidiaries was approximately $1.9
million. As a result of the purchase of 100% of the $160.0 million principal
amount of our outstanding 13% senior notes pursuant to the tender offer, the
$30.4 million has been released from the escrow account. These amounts and other
transactions do not include indebtedness of $21.0 million, secured by a first
mortgage on the building at 139 Centre Street, incurred on January 25, 2000.
Upon any distribution to our creditors in a dissolution, winding up,
liquidation or reorganization or similar proceeding relating to us or our
property, the holders of our secured debt would be entitled to the value of the
secured assets before any payment may be made with respect to the notes.
Furthermore, the ability of our creditors, including the holders of the notes,
to participate in the assets of any of our subsidiaries upon any liquidation or
bankruptcy of a subsidiary will be subject to the prior claims of that
subsidiary's creditors, including trade creditors.
AFTER MARCH 2001, WE MAY NOT HAVE SUFFICIENT CASH FLOW TO SERVICE OUR DEBT AND
OPERATE OUR BUSINESS.
Based on our current level of operations, we believe that we will have
sufficient cash flow to meet our needs at least through the period ending March
31, 2001. After that time, we may not be able to generate sufficient cash flow
from operations or be able to raise capital in sufficient amounts, or at all, to
enable us to service our debt, including the notes, and operate our business.
Our ability to raise additional capital may be limited by a number of factors,
including market conditions and the terms governing the notes.
WE HAVE A HISTORY OF OPERATING LOSSES WHICH WE EXPECT TO CONTINUE AND INCREASE
FOR THE NEAR FUTURE. WE CANNOT ASSURE YOU THAT WE WILL EVER BECOME PROFITABLE.
We have experienced significant losses since we began operations. We expect
to continue to incur significant losses for the foreseeable future. We have
incurred net losses of approximately $43.4 million, $11.2 million and $3.1
million for the years ended September 30, 1999, 1998 and 1997, respectively. As
of December 31, 1999, our accumulated deficit was approximately $80.4 million.
We expect our expenses to increase as we expand our business. We cannot assure
you that our revenues will increase as a result of our increased spending. If
revenues grow more slowly than we anticipate, or if operating expenses exceed
our expectations, we may not become profitable. Even if we become profitable, we
may be unable to sustain our profitability. In either of these cases, our
business, financial conditions and results of operations will be materially and
adversely affected.
COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE AND WE MAY NOT BE ABLE TO ATTRACT
OR RETAIN THE PERSONNEL WE NEED IN EACH OF THE CRITICAL AREAS OF OUR BUSINESS.
Our future success depends on our ability to attract and retain key
personnel for management, technical, sales and marketing, and customer support
positions. The failure to attract or retain qualified personnel in each of these
critical areas could adversely affect the ability of our business to perform its
functions.
OUR GROWTH IS PLACING A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES.
As of December 31, 1999, we had approximately 510 full-time employees in
comparison to approximately 170 full-time employees as of September 30, 1998. If
we do not successfully institute
11
<PAGE> 16
adequate financial and managerial controls and reporting systems and procedures
to operate from multiple facilities in geographically dispersed locations, we
may not be able to grow as we expect or meet the needs of our current and future
customers and, consequently, our entire business may suffer.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO INTEGRATE, OPERATE AND FURTHER EXPAND
AND UPGRADE OUR NEW NETWORK AND FACILITIES.
A key element of our business strategy is the expansion of our facilities
and our network, which has required, and will continue to require, a great deal
of management time and the expenditure of large amounts of money. This expansion
will require, among other things:
- identification of sites for new facilities;
- negotiation and consummation of agreements to lease the properties;
- construction of facilities;
- purchase and installation of equipment;
- recruiting required staff; and
- interconnection with our network.
Any delay in the completion of our new network or facilities may make us
less attractive to future customers and may hamper our ability to retain our
current customers, which in turn could adversely affect our entire business.
WE CANNOT ASSURE YOU THAT OUR TELECOMMUNICATION PROVIDERS WILL CONTINUE TO
SERVICE US OR THAT WE COULD REPLACE THEM ON COMPARABLE TERMS, OR AT ALL.
Our existing network relies entirely on a limited number of third party
data communications and telecommunications providers. These carriers are subject
to price constraints, including tariff controls, that in the future may be
relaxed or lifted. Price increases or the lack of service availability could
have a material and adverse effect on the costs of maintaining our network and
our ability to maintain or grow our business.
IF WE FAIL TO MAINTAIN ADEQUATE PEERING RELATIONSHIPS OUR OPERATING COSTS WILL
INCREASE.
The Internet includes a number of Internet service providers that operate
their own networks and connect with each other at various points under
arrangements known as "peering" arrangements. It is more costly and less
efficient to operate a network without peering arrangements. Consequently, we
must maintain peering relationships to maintain high network performance levels
without having to pay excessive amounts for the transmission of data. These
arrangements are not subject to regulation and the terms, conditions and costs
can be changed by the provider over time. While we currently have agreements to
peer with more than 200 organizations that represent over 550 peering
connections, we may not be able to maintain a favorable cost structure for data
transmission with our peering partners.
WE ARE JUST BEGINNING TO EXPAND INTO INTERNATIONAL MARKETS AND MAY NOT BE
SUCCESSFUL IN THESE EFFORTS.
Prior to 1999, we operated only in the New York City area. We began
operations in Santa Clara, California in June, 1999 and in London in July, 1999.
In addition, we recently established points of presence or network access points
in Chicago, Washington D.C., Amsterdam, Frankfurt, Geneva, Milan, Paris and
Stockholm. Because we have limited experience operating in markets outside the
United States, we may have difficulty adapting our products and services to
different market needs. We may also be unsuccessful in our efforts to market and
sell these products and services to customers abroad. In addition, we may find
it more difficult and expensive to hire and train employees and to manage
international operations together with our United States operations. If we fail
to successfully address these risks, our international expansion may be
materially and adversely affected.
12
<PAGE> 17
WE MAY NOT BE ABLE TO OBTAIN COMPUTER HARDWARE AND SOFTWARE ON THE SCALE AND AT
THE TIMES WE NEED AT AN AFFORDABLE COST.
We rely on outside vendors to supply us with computer hardware, software
and networking equipment. We primarily buy these products from Cisco, Compaq and
Sun Microsystems. Consequently, our expertise is concentrated in products from
these manufacturers. We also rely on Cisco for network design and computer
installation services. If we were unable over an extended period of time to
obtain the products and services that we need on a timely basis and at
affordable prices, it would have a material adverse effect on our business,
financial condition and results of operations.
WE MAY MAKE INVESTMENTS OR ACQUISITIONS THAT ARE NOT SUCCESSFUL.
We may make investments in or acquire complementary businesses, products,
services or technologies, but we have very limited experience in these
activities. Consequently, we are subject to the following risks:
- we may not be able to identify suitable investment or acquisition
candidates;
- if we do identify suitable candidates, we may not be able to make
investments or acquisitions on terms which prove advantageous;
- acquisitions may cause a disruption in our ongoing business, distract our
management and other resources and make it difficult to maintain the
operations, organization and procedures of Globix or the acquired
business; and
- we may not be able to retain key employees of the acquired companies or
maintain good relations with its customers or suppliers.
BECAUSE WE ARE DEPENDENT ON COMPUTER SYSTEMS, A SYSTEMS FAILURE WOULD CAUSE A
SIGNIFICANT DISRUPTION TO OUR BUSINESS.
Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware systems and infrastructure. We currently
maintain most of our computer systems in our new facilities in New York City,
London and Santa Clara, California. While we have taken precautions against
systems failure, interruptions could result from natural disasters as well as
power loss, telecommunications failure and similar events. We also lease
telecommunications lines from local, regional and national carriers, whose
service may be interrupted. Our business, financial condition and results of
operations could be materially and adversely affected by any damage or failure
that interrupts or delays our operations.
IF OUR SECURITY MEASURES ARE INADEQUATE, OUR ABILITY TO ATTRACT AND RETAIN
CUSTOMERS MAY BE ADVERSELY AFFECTED.
We have taken measures to protect the integrity of our infrastructure and
the privacy of confidential information. Nonetheless, our infrastructure is
potentially vulnerable to physical or electronic break-ins, viruses or similar
problems. If a person circumvents our security measures, he or she could
jeopardize the security of confidential information stored on our systems,
misappropriate proprietary information or cause interruptions in our operations.
We may be required to make significant additional investments and efforts to
protect against or remedy security breaches. Security breaches that result in
access to confidential information could damage our reputation and expose us to
a risk of loss or liability.
The security services that we offer in connection with our customers'
networks cannot assure complete protection from computer viruses, break-ins and
other disruptive problems. Although we attempt to limit contractually our
liability in such instances, the occurrence of these problems may result in
claims against us or liability on our part. These claims, regardless of their
ultimate outcome, could result in costly litigation and could have a material
adverse effect on our business and reputation and on our ability to attract and
retain customers for our products and services.
OUR BUSINESS DEPENDS ON THE CONTINUED GROWTH, USE AND IMPROVEMENT OF THE
INTERNET.
Our products and services are targeted toward businesses which use the
Internet. The Internet is subject to a high level of uncertainty and is
characterized by rapidly changing technology, evolving industry
13
<PAGE> 18
standards, and frequent new product and service introductions. Accordingly, you
should consider the risks and difficulties frequently encountered in new and
rapidly evolving markets.
Critical issues concerning the commercial use of the Internet remain
unresolved and may affect the growth of Internet use, especially in the market
we target. Despite growing interest in the many commercial uses of the Internet,
many businesses have been deterred from purchasing Internet products and
services for a number of reasons, including:
- inadequate protection of the confidentiality of stored data and
information moving across the Internet;
- inconsistent quality of service;
- inability to integrate business applications on the Internet;
- the need to deal with multiple vendors, whose products are frequently
incompatible; and
- lack of availability of cost-effective, high-speed products and services.
If Internet usage does not grow at the rates which we presently anticipate,
our business, financial condition and results of operations will be materially
and adversely affected.
SIGNIFICANT TECHNOLOGICAL CHANGES COULD RENDER OUR EXISTING PRODUCTS AND
SERVICES OBSOLETE.
We must adapt to our rapidly changing market by continually improving the
responsiveness, functionality and features of our products and services to meet
our customers' needs. If we are unable to respond to technological advances and
conform to emerging industry standards in a cost-effective and timely basis, our
business, financial condition and results of operations will be materially and
adversely affected.
BECAUSE WE OFFER A BROAD RANGE OF GOODS AND SERVICES, WE ENCOUNTER COMPETITION
FROM NUMEROUS OTHER BUSINESSES WHICH PROVIDE ONE OR MORE SIMILAR GOODS OR
SERVICES.
Competition for the Internet products and services that we provide is
intense and we expect that competition will continue to intensify.
Our competitors include other Internet service providers with a significant
national or global presence that focus on business customers, such as DIGEX,
Digital Island, Exodus, Global Crossing's Global Center, NaviSite, PSINet and
UUNet.
Our competitors also include telecommunications companies, such as AT&T,
British Telecom, Cable & Wireless, Level 3, MCI WorldCom, Qwest and Sprint.
Many of our existing competitors, as well as a number of potential new
competitors, have:
- longer operating histories;
- greater name recognition;
- larger customer bases;
- larger networks;
- more and larger facilities; and
- significantly greater financial, technical and marketing resources.
New competitors, including large computer hardware, software, media and
other technology and telecommunications companies, may enter our market and
rapidly acquire significant market share. As a result of increased competition
and vertical and horizontal integration in the industry, we could encounter
significant pricing pressures. These pricing pressures could result in
significantly lower average selling prices for our products and services. For
example, telecommunications companies may be able to provide customers with
reduced communications costs in connection with their Internet access services,
significantly increasing pricing pressures on us. We may not be able to offset
the effects of any price reductions with an increase in the number of our
customers, higher revenue from value-added services,
14
<PAGE> 19
cost reductions or otherwise. In addition, Internet access service businesses
are likely to encounter consolidation in the near future, which could result in
increased price and other competition.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS.
The Year 2000 issue did not cause any apparent disruption to our business
or, to the best of our knowledge, to any of our providers or others with which
we do business. However, it is possible that unforeseen problems may still
appear. We cannot predict what effect, if any, these problems may present to us.
CHANGES IN GOVERNMENT REGULATIONS RELATED TO THE INTERNET COULD RESTRICT OUR
ACTIVITIES, EXPOSE US TO LIABILITY OR OTHERWISE ADVERSELY AFFECT OUR BUSINESS.
There are an increasing number of laws and regulations pertaining to the
Internet. These laws or regulations relate to liability for content and
information received from or transmitted over the Internet, user privacy and
security, taxation, enforcing online contracts, consumer protection and other
issues concerning products and services. The government may also seek to
regulate some aspects of our activities as basic telecommunications services.
Moreover, the applicability to the Internet of existing laws governing
copyright, trademark, trade secret, obscenity, libel, consumer protection,
personal privacy and other issues is uncertain and developing. We cannot predict
the impact, if any, that future regulation or regulatory changes may have on our
business.
WE MAY BE LIABLE FOR VIOLATING THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
Intellectual property rights, such as patents, technology, software,
copyrights, trademarks and domain names, are very important to companies engaged
in Internet-related businesses. We do not believe that the intellectual property
important to the operation of our business, whether owned by us or licensed to
us by a third party, infringes or violates the intellectual property rights of
any other party. Nonetheless, a third party may bring a claim of infringement
against us or any of our material suppliers and we may be forced to pay for a
license to continue using the intellectual property. There is no guarantee that
we could obtain such a license, or that it would be available on reasonable
terms. Alternatively, we may be forced to defend ourselves against infringement
claims in litigation, which would be costly and could result in our having to
pay damages to third parties. We have taken steps contractually to limit our
liability for the use of intellectual property licensed to us by third parties.
However, there can be no guarantee that we have adequate protection.
WE MAY BE LIABLE FOR THE MATERIAL OUR CUSTOMERS DISTRIBUTE OVER THE INTERNET.
The law relating to the liability of online service providers, private
network operators and Internet service providers for content and information
carried on or disseminated through their networks is currently unsettled. While
we have taken steps contractually to limit our liability, we may become subject
to legal claims relating to the content of the web sites we host. For example,
lawsuits may be brought against us claiming that material inappropriate for
viewing by young children can be accessed from the web sites we host. Claims
could also involve matters such as defamation, invasion of privacy, copyright
and trademark infringement. Internet service providers have been sued in the
past, sometimes successfully, based on the material disseminated over their
networks. We may take additional measures to reduce our exposure to these risks,
which could be costly or result in some customers not doing business with us. In
addition, defending ourselves against claims, or paying damage awards to third
parties, could strain our management and financial resources.
WE MAY NOT BE ABLE TO PURCHASE YOUR NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of specified change of control events, we are required
to offer to purchase each holder's notes at a price of 101% of their principal
amount plus accrued and unpaid interest. We may not have sufficient financial
resources to purchase all of the notes that holders may require us to purchase
upon a change of control.
15
<PAGE> 20
YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES.
The old notes are eligible for trading in the Portal Market. There is no
existing trading market for the new notes and we do not intend to apply for a
listing or quotation of the notes on any securities exchange or stock market. No
broker-dealer is obligated to engage in market-making activities with respect to
the notes, and any such market-making undertaken may be discontinued at any time
without notice. In addition, any market-making activity in the notes will be
subject to the limits imposed under the Exchange Act. Accordingly, we cannot be
sure that any market for the new notes will develop, that the holders of the new
notes will be able to sell their notes or the prices at which any sales will be
made. If a market for the notes were to develop, the notes could trade at prices
that may be higher or lower than the exchange tender price of the old notes.
Prevailing market prices from time to time will depend on many factors,
including then existing interest rates, our operating results and cash flow and
the market for similar securities.
In addition, the liquidity of, and trading markets for, the new notes may
be adversely affected by declines in the market for high-yield securities
generally. A decline may aversely affect liquidity and trading markets
independent of our financial performance or prospects.
WE HAVE BROAD DISCRETION IN THE ALLOCATION OF THE PROCEEDS OF THE SALE OF THE
NOTES.
We intend to use the net proceeds from the sale of the notes in February,
2000 to purchase any and all of our outstanding 13% senior notes pursuant to the
tender offer, to expand and further develop our facilities and network,
including adding SuperPOPs and backbone capacity, and for general corporate
purposes. In addition, we may use a portion of the net proceeds to make
investments in, or acquire, complementary businesses. We currently have no
agreements with respect to any such transaction. As of the date of this
prospectus, and except for the portion of proceeds used in connection with the
purchase of our 13% senior notes, we cannot specify with certainty the
particular uses for the net proceeds from the sale of the notes. Accordingly,
our management will have broad discretion in the application of the net proceeds
without prior stockholder approval. As a result, our success will be
substantially dependent upon the discretion and judgment of our management.
16
<PAGE> 21
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. When used in this prospectus, the words "anticipate," "believe,"
"estimate," "will," "may," "intend" and "expect" and similar expressions
generally identify forward-looking statements. Although we believe that our
plans, intentions and expectations reflected in the forward-looking statements
are reasonable, we cannot be sure that they will be achieved. Forward-looking
statements in this prospectus include those relating to the expansion of our
facilities of openings, the upgrading of our telecommunications infrastructure,
our planned introduction of various new products and services, the possibility
of acquiring complementary businesses, products, services and technologies and
our ability to make required payments on our current and future debt
instruments. Actual results, performance or achievements could differ materially
from those contemplated by the forward-looking statements contained in this
prospectus. Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth in this prospectus,
including under the heading "Risk Factors." These factors are not intended to
represent a complete list of the general or specific factors that may affect us.
It should be recognized that other factors, including general economic factors
and business strategies, may be significant, presently or in the future, and the
factors set forth in this prospectus may affect us to a greater extent than
indicated. All forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the cautionary
statements set forth in this prospectus. Except as required by law, we undertake
no obligation to update any forward-looking statement, whether as a result of
new information, future events or otherwise.
17
<PAGE> 22
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new notes offered
in the exchange offer. In consideration for issuing the new notes, we will
receive in exchange old notes in like principal amount, the terms of which are
identical in all respects to the new notes except for transfer restrictions and
registration rights. The old notes surrendered in exchange for new notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the new
notes will not result in any increase in our indebtedness.
The net proceeds from the sale of the old notes, after deducting the
underwriting discounts and offering expenses, was approximately $579.0 million.
We used $170.4 million of the net proceeds to pay the purchase price,
exclusive of accrued and unpaid interest, for our 13% senior notes acquired
pursuant to the tender offer. We will use the remainder of our net proceeds to
expand and further develop our facilities and network, including adding
SuperPOPs and backbone capacity, and for general corporate purposes, including
possible acquisitions. Pending such uses, we expect to invest the net proceeds
from the offering in short-term, investment grade instruments, certificates of
deposits or direct or guaranteed obligations of the United States.
18
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of Globix as of December
31, 1999, based on common stock outstanding on that date of 33,921,708 shares:
- on an actual basis; and
- on an as adjusted basis to give effect to the offering of the notes,
after deduction of underwriting discounts and estimated offering
expenses. It also gives effect to the purchase of all of our outstanding
13% senior notes with $170.4 million from the net proceeds from the sale
of the old notes, the release of the $30.4 million of restricted cash
previously held in escrow for the benefit of the holders of the 13%
senior notes and the write-off of unamortized debt discount and issuance
costs associated with those notes which has been recorded as an
extraordinary item in connection with the completion of the tender offer.
The capitalization information set forth in the table below is qualified by
and should be read in conjunction with the more detailed consolidated financial
statements and the notes to those financial statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
AS
ACTUAL ADJUSTED(1)
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.......... 164,951 603,999
Restricted cash and investments........................... 37,677 7,229
Total cash, cash equivalents, marketable securities, and
restricted cash and investments........................ 202,628 611,228
Current portion of capital lease obligations.............. 2,044 2,044
Long-term debt:
Capital lease obligations, net of current portion......... 2,316 2,316
13% Senior Notes, net of discount......................... 158,166 --
12 1/2% Senior Notes...................................... -- 600,000
Total long-term debt (including current portion)............ 162,526 604,360
Redeemable convertible preferred stock...................... 76,281 76,281
Stockholders' equity:
Common stock, $.01 par value, 75,000,000 shares
authorized, 33,921,708 shares issued and outstanding... 339 339
Additional paid-in capital.................................. 155,969 155,969
Accumulated other comprehensive income...................... 10,310 10,310
Accumulated deficit......................................... (80,441) (98,090)
Total stockholders' equity.................................. 86,177 68,528
Total capitalization........................................ 324,984 749,169
======= =======
</TABLE>
- ---------------
(1) The as adjusted data does not reflect a $21.0 million loan, secured by a
first mortgage on the building at 139 Centre Street housing Globix's New
York SuperPOP, which was entered into on January 25, 2000.
19
<PAGE> 24
SELECTED FINANCIAL DATA
The selected consolidated financial data for the years ended September 30,
1997, 1998 and 1999 are derived from our financial statements which have been
audited by Arthur Andersen LLP, independent public accountants, and included
elsewhere in this prospectus. The selected consolidated financial data for the
nine months ended September 30, 1995 and the year ended September 30, 1996 are
derived from our financial statements which have been audited by Arthur Andersen
LLP, and are not presented separately in this prospectus. We changed our fiscal
year end from December 31 to September 30 in 1995. Consequently, the 1995 fiscal
year consisted of nine months. The selected consolidated statement of operations
data for the three months ended December 31, 1998 and 1999 and the selected
consolidated balance sheet data as of December 31, 1999 are derived from our
unaudited consolidated financial statements which, in our opinion, have been
prepared on the same basis as the audited consolidated financial statements and
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations and financial
position for these periods. Interm periods are not necessarily indicative of
results of operations for future periods. The following selected consolidated
financial data should be read in conjunction with the consolidated financial
statements and notes to these statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, --------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------------- ------- ------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................... $8,738 $10,374 $17,400 $ 20,595 $ 33,817 $ 5,929 $ 16,145
Operating costs and
expenses:
Cost of revenue......... 7,292 8,599 13,699 13,322 22,184 3,702 10,056
Selling, general and
administrative....... 1,247 3,244 6,036 10,696 36,495 5,566 19,695
Depreciation and
amortization......... 68 219 675 1,310 6,329 507 3,357
------ ------- ------- -------- -------- ------- --------
Total operating
costs and
expenses...... 8,607 12,062 20,410 25,328 65,008 9,775 33,108
------ ------- ------- -------- -------- ------- --------
Income (loss) from
operations.............. 131 (1,688) (3,010) (4,733) (31,191) (3,846) (16,963)
Interest and financing
expense................. (73) (356) (177) (8,376) (18,386) (4,917) (5,469)
Interest income........... -- 121 72 1,953 6,192 944 1,621
Net income (loss)......... $ 39 $(1,893) $(3,115) $(11,156) $(43,385) $(7,819) $(20,811)
====== ======= ======= ======== ======== ======= ========
OTHER FINANCIAL DATA:
Deficiency of earnings to
fixed charges(1)........ $ -- $(1,923) $(3,115) $(12,254) $(47,152) $(8,584) $(20,768)
EBITDA(2)................. $ 199 $(1,469) $(2,335) $ (3,423) $(24,862) $(3,339) $(13,606)
Capital expenditures...... $ 150 $ 1,955 $ 1,542 $ 23,270 $ 83,434 $22,320 $ 10,031
</TABLE>
20
<PAGE> 25
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
----------------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
($) ($) ($) ($) ($) ($)
------------- ------- ------- -------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities........... 222 2,342 2,401 76,111 111,412 164,951
Restricted cash and
investments.......... -- 400 325 60,480 45,039 37,677
Working capital........ 180 3,468 1,980 75,859 101,216 154,226
Total assets........... 2,962 7,810 11,025 182,266 302,518 357,717
Long term obligations
(including current
portion)............. 123 39 1,258 161,489 163,093 162,526
Redeemable convertible
preferred stock...... -- -- -- -- -- 76,281
Stockholders' equity... 299 6,090 5,014 2,719 106,405 86,177
</TABLE>
- ---------------
(1) Deficiency of earnings to fixed charges is defined as the difference between
the pre-tax loss and the total of fixed charges. Fixed charges consist of
interest charges and amortization of debt discount and offering costs,
whether expensed or capitalized, and one-third of rental expense, which we
believe to be representative of interest.
(2) EBITDA is earnings from operations before interest, taxes, depreciation and
amortization. EBITDA is included because management believes that certain
investors find it a useful tool for measuring a company's ability to service
its debt. However, EBITDA does not represent cash flow from operations, as
defined by generally accepted accounting principles. In addition, EBITDA
should not be considered a substitute for net income or net loss or as an
indicator of our operating performance or cash flow or as a measure of
liquidity. This data should be examined in conjunction with our consolidated
financial statements and notes to the financial statements included
elsewhere in this prospectus. EBITDA as presented may not be comparable to
similarly titled measures reported by other companies because not all
companies calculate EBITDA in an identical manner.
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the
consolidated financial statements and notes to the financial statements
appearing elsewhere in this prospectus. The following discussion contains
forward-looking statements based on Globix's current expectations, assumptions,
estimates and projections about Globix and its industry. Globix's results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including the risks and uncertainties discussed in
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
Globix was founded in 1989 as a value-added reseller primarily focused on
providing custom computer hardware and software solutions for desktop
publishing. By 1995, Globix recognized the growing demand by businesses for
electronic information delivery and began to re-shape its corporate strategy to
focus on offering Internet products and services. In early 1996, Globix raised
net proceeds of approximately $7.4 million through an initial public offering of
its common stock and subsequently began to offer Internet access products and
services to business customers. In 1997, Globix expanded its product and service
offerings beyond Internet access and began to offer a range of end-to-end
Internet solutions designed to enable its customers to more effectively
capitalize on the Internet as a business tool.
In 1998, Globix undertook a major expansion plan in order to more
aggressively pursue opportunities resulting from the tremendous growth of the
Internet. In April 1998, Globix completed a $160.0 million offering of 13%
senior notes to fund the expansion of its physical facilities and the
acquisition and build-out of its network backbone. In 1999, Globix completed
construction of the new state-of-the-art SuperPOP facilities in New York City,
London and Santa Clara, California and began operations at each facility. These
new SuperPOPs increased Globix's total Internet data center capacity to
approximately 63,000 square feet.
In March 1999, Globix completed a public offering of 16,000,000 shares of
its common stock, resulting in proceeds to Globix, after expenses, of
approximately $136.6 million. The proceeds from that offering are being used to
fund the continued expansion of Globix's facilities and network and for general
corporate purposes.
Globix reports its results of operations in two operating segments: the
"Internet Division" and the "Server Sales and Integration Division." The
Internet Division provides dedicated Internet access, hosting, co-location,
application services (such as streaming media, electronic commerce, and
collaborative and messaging solutions) and solutions architecture and system
administration. The Server Sales and Integration Division provides
Internet-related hardware and software sales and systems and network
integration. Revenue from the Internet Division has grown significantly as a
percentage of total revenue, increasing from 6% in 1996 to 43% as of December
31, 1999. Globix expects that Internet Division revenues will continue to grow
both absolutely and as a percentage of total revenues.
Globix continues to derive a substantial portion of its total revenues from
sales of third-party hardware and software, including workstation web and
database servers, network equipment, and server and application software. Globix
intends to continue to offer higher-margin workstation, server and software
components as a complement to its Internet solutions. Globix maintains a limited
inventory of hardware and software and typically purchases such products from
third-party vendors only after receipt of a customer order. The second largest
component of Globix's total revenues is from dedicated Internet access services
to business customers. Globix's Internet access customers typically sign one or
two-year contracts that provide for fixed, monthly-recurring service fees and a
one-time installation fee. Globix also derives revenues from hosting and
co-location services based upon its customers' bandwidth requirements, including
charges for fixed amounts of bandwidth availability and incremental fees for
additional bandwidth use. In addition to fees based on bandwidth, Globix charges
its co-location customers monthly fees for the use of its physical facilities.
Globix's hosting and co-location contracts typically range from one to two
years. Application services are charged on a monthly, fixed price or time and
materials basis.
22
<PAGE> 27
Cost of revenues for the Server Sales and Integration Division consist
primarily of acquisition costs of third-party hardware and software. Cost of
revenues for the Internet Division consist primarily of telecommunications costs
for Internet access, hosting and co-location customers and direct labor costs
for application services. Telecommunications costs include the cost of providing
local telephone lines into the Globix SuperPOP, costs related to the use of
third-party networks, and costs associated with leased lines. Cost of revenues
for the Internet Division also include labor and overhead costs for the
personnel performing application services, including the cost of project
management, quality control and project review.
Selling, general and administrative expenses consist primarily of sales and
marketing personnel and related occupancy costs; advertising costs; salaries and
occupancy costs for executives, financial and administrative personnel; and
personnel recruitment and related operating expenses associated with network
operations, customer service and field services. Globix has recently hired a
number of members of its senior management. Globix continues to hire a
significant number of additional personnel to staff its three new SuperPOP
facilities and to expand its sales and marketing, network operations, customer
service and field services personnel. Accordingly, Globix expects selling,
general and administrative expenses to continue to significantly increase for
the foreseeable future.
Depreciation and amortization expense increased significantly in fiscal
1999 due to the expansion of the SuperPOP facilities. Globix depreciates its
capital assets on a straight-line basis over the useful life of the assets,
ranging from 5 to 40 years. Globix began to recognize depreciation expense in
the year ended September 30, 1999 for its new SuperPOPs in New York, London and
Santa Clara, California upon commencement of operations at each of these
facilities. In addition, Globix amortizes debt discount and issuance costs
associated with its debt offerings over the life of those offerings using the
effective interest method.
Globix historically has experienced negative cash flow from operations and
has incurred net losses. Globix's ability to generate positive cash flow from
operations and achieve profitability is dependent upon Globix's ability to
continue to grow its revenue base and achieve further operating efficiencies.
For the years ended September 30, 1997, 1998 and 1999, Globix generated
positive(negative) cash flows from operations of approximately $(2.5) million,
$0.1 million and $(36.9) million, respectively, and incurred net losses of
approximately $3.1 million, $11.2 million and $43.4 million, respectively.
Globix expects to continue to experience negative cash flow from operations and
to incur net losses as a result of its significant investment in the expansion
of its network and facilities, the hiring of additional personnel and the
interest expense related to the notes. As of December 31, 1999, Globix had an
accumulated deficit of approximately $80.4.
23
<PAGE> 28
SEGMENT INFORMATION
Globix's activities fall within two reporting segments: the Internet
Division and the Server Sales and Integration Division. The following table sets
forth segment information for the years ended September 30, 1997, 1998 and 1999
and the three months ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------- --------------------
1997 1998 1999 1998 1999
------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Internet........................... $ 2,414 $ 6,448 $ 13,033 $ 2,280 $ 6,956
Server sales and integration....... 14,986 14,147 20,784 3,649 9,189
------- -------- -------- -------- --------
Consolidated....................... $17,400 $ 20,595 $ 33,817 $ 5,929 $ 16,145
======= ======== ======== ======== ========
Operating income (loss):
Internet........................... $ (84) $ 1,146 $(13,001) $ (740) $ (8,618)
Server sales and integration....... (379) 721 1,019 38 1,043
Corporate.......................... (2,547) (6,600) (19,209) (3,144) (9,388)
------- -------- -------- -------- --------
Consolidated....................... $(3,010) $ (4,733) $(31,191) $ (3,846) $(16,963)
======= ======== ======== ======== ========
Identifiable assets:
Internet........................... $ 2,105 $ 7,808 $ 57,503 $ 25,413 $ 56,899
Server sales and integration....... 5,782 3,732 6,074 3,614 7,068
Corporate.......................... 3,138 170,726 238,941 155,874 293,750
------- -------- -------- -------- --------
Consolidated....................... $11,025 $182,266 $302,518 $184,901 $357,717
======= ======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data for the years ended September 30, 1997, 1998 and 1999 and the three months
ended December 31, 1998 and 1999 as a percentage of total revenues. This
information should be read in conjunction with the consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------
1997 1998 1999 1998 1999
----- ----- ------ ------- -------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues:
Internet...................................... 13.9% 31.3% 38.5% 38.5% 43.2%
Server sales and integration.................. 86.1 68.7 61.5 61.6 56.8
----- ----- ------ ------ ------
Total revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ------ ------ ------
Costs and expenses:
Cost of revenues.............................. 78.7 64.7 65.6 62.4 62.2
Selling, general and administrative........... 34.7 51.9 108.0 93.9 122.0
Depreciation and amortization................. 3.9 6.4 18.6 8.6 20.8
----- ----- ------ ------ ------
Total costs and expenses........................ 117.3 123.0 192.2 164.9 205.0
----- ----- ------ ------ ------
Loss from operations............................ (17.3) (23.0) (92.2) (64.9) (105.0)
Interest and financing (expense) income, net.... (0.6) (31.2) (36.2) (67.0) (23.9)
----- ----- ------ ------ ------
Net loss........................................ (17.9)% (54.2)% (128.4)% (131.9)% (128.9)%
===== ===== ====== ====== ======
</TABLE>
24
<PAGE> 29
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth quarterly consolidated statement of
operations data for the periods indicated. The quarterly consolidated statement
of operations data is derived from our unaudited financial statements, which in
management's opinion has been prepared on substantially the same basis as our
audited financial statements and includes all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the financial
position and results of operations for these periods. This information should be
read in conjunction with the financial statements and notes thereto included
elsewhere in this prospectus. Our quarterly results of operations are not
necessarily indicative of our results of operations for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
QUARTERLY CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Revenues:
Internet................. $1,441 $ 1,637 $ 2,042 $ 2,281 $ 2,711 $ 3,374
Server sales and
integration............ 2,911 4,059 3,765 3,648 4,375 6,007
------ ------- ------- ------- ------- -------
Total revenues......... 4,352 5,696 5,807 5,929 7,086 9,381
Cost of revenues:
Internet................. 401 399 397 565 803 1,377
Server sales and
integration............ 2,343 3,401 3,267 3,137 3,673 5,055
------ ------- ------- ------- ------- -------
Total cost of
revenues............. 2,744 3,800 3,664 3,702 4,476 6,432
Total operating expenses... 2,134 3,406 4,615 6,073 8,367 10,141
Loss from operations....... (526) (1,510) (2,472) (3,846) (5,757) (7,192)
------ ------- ------- ------- ------- -------
Net loss................... $ (588) $(4,070) $(6,217) $(7,819) $(9,650) $(8,809)
====== ======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
QUARTERLY CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Revenues:
Internet................. $ 4,667 $ 6,956
Server sales and
integration............ 6,754 9,189
-------- --------
Total revenues......... 11,421 16,145
Cost of revenues:
Internet................. 1,906 2,539
Server sales and
integration............ 5,668 7,517
-------- --------
Total cost of
revenues............. 7,574 10,056
Total operating expenses... 18,243 23,052
Loss from operations....... (14,396) (16,963)
-------- --------
Net loss................... $(17,107) $(20,811)
======== ========
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1998
Revenues. Total revenues for the three months ended December 31, 1999
increased 172% to $16.2 million from $5.9 million for the three months ended
December 31, 1998. Revenues from the Server Sales and Integration Division for
the three months ended December 31, 1999 increased 152% to $9.2 million from
$3.7 million for the three months ended December 31, 1998. Revenues from the
Internet Division increased 205% to $7.0 million for the three months ended
December 31, 1999 from $2.3 million for the three months ended December 31,
1998. This increase was primarily attributable to the expansion of our available
data center space, increased marketing efforts and our addition of new sales and
technical staff. The increase in percentage of Internet Division revenues as a
percentage of total revenues reflected our continued shift in product mix toward
Internet related sales.
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended December 31, 1999 were $19.7 million or 122%
of total revenues as compared to $5.6 million or 93.9% of total revenues for the
three months ended December 31, 1998. This increase in absolute dollars and as a
percentage of total revenues was primarily attributable to an increase in
employees and marketing costs. The number of full time employees increased from
211 as of December 31, 1998 to over 520 as of December 31, 1999. Salaries and
benefit costs increased from $3.1 million for the three months ended December
31, 1998 to $10.4 million for the three months ended December 31, 1999. In
addition, we increased expenditures in advertising from $1.1 million for the
three months ended December 31, 1998 to $3.3 million for the three months ended
December 31, 1999.
25
<PAGE> 30
Interest and Financing Expense and Interest Income. The increase in
interest expense to $5.4 million for the three months ended December 31, 1999
from $4.9 million for the three months ended December 31, 1998 is a result of
increased debt financing and related costs. We are amortizing debt discount and
issuance costs of $8.9 million relating to the $160.0 million debt financing
over seven years using the effective interest method. The increase in interest
income to $1.6 million for the three months ended December 31, 1999 reflects the
increased cash position derived from the net proceeds of the March 1999 equity
financing and the December 1999 issuance of the Series A Convertible Preferred
Stock.
Depreciation and Amortization. Depreciation and amortization increased to
$3.3 million for the three months ended December 31, 1999 as compared to $0.5
million for the three months ended December 31, 1998. The increase was primarily
related to property and equipment purchased for use in the Internet Division.
Net Loss and Losses Per Share. As a result of the above, we reported a net
loss of $20.8 million and a $21.3 million loss attributable to common
stockholders or $0.64 per share for the three months ended December 31, 1999 as
compared to a net loss of $7.8 million or $0.47 per share for the three months
ended December 31, 1998.
YEAR ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1998
Revenue. Total revenue for the year ended September 30, 1999 increased
64.2% to $33.8 million from $20.6 million for the year ended September 30, 1998.
Revenue from the Internet Division for the year ended September 30, 1999
increased 102% to $13.0 million from $6.4 million for the year ended September
30, 1998. This increase was primarily attributable to the opening of our three
new SuperPOP facilities and the related increase in the number of customers to
which we provide Internet connectivity, hosting and co-location services. Also
contributing to the increase is an improvement in the average annual revenue
realized per new business customer and an increase in the business account
retention rate. Revenue from the Server Sales and Integration Division increased
47% to $20.8 million for the year ended September 30, 1999 from $14.1 million
for the year ended September 30, 1998. This increase was primarily attributable
to a planned shift in product mix toward higher priced and higher margin
products. The increase in Internet Division revenues as a percentage of total
revenues reflects our continued shift in product mix toward Internet related
sales.
Cost of Revenue. Cost of revenue for the year ended September 30, 1999 was
$22.2 million or 65.6% of total revenues as compared to $13.3 million or 64.7%
of total revenues for the year ended September 30, 1998. The increase in cost of
revenue was primarily attributable to an increase in data transmission costs
because of higher network operating and maintenance expenses associated with the
expansion of the network backbone. As utilization of the network increases in
future years, we expect to realize a reduction in per unit data transmission
costs due to the network's scalability and fixed cost structure.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended September 30, 1999 were $36.5 million or 108% of
total revenues as compared to $10.7 million or 51.9% of total revenues for the
year ended September 30, 1998. Approximately $14.0 million or 56% of the
increase was attributable to an increase in sales and marketing, engineering,
training and administration personnel necessitated by the growth in
Internet-related operations. The number of employees increased from
approximately 170 as of September 30, 1998 to approximately 450 as of September
30, 1999. Marketing expenses increased to $4.8 million for the year ended
September 30, 1999 from $1.3 million for the year ended September 30, 1998. The
marketing increase is primarily attributable to costs related to a branding and
advertising campaign.
Interest and Financing Expense and Interest Income. The increase in
interest expense is a result of interest costs associated with the 13% senior
notes being recorded for a full year in fiscal 1999. This interest expense was
partially offset by an increase in interest income related to the increased cash
position derived from the net proceeds of the public equity offering in March
1999. We amortized debt discount
26
<PAGE> 31
and issuance costs of $8.9 million associated with the 13% senior notes over
seven years using the effective interest method.
Depreciation and Amortization. Depreciation and amortization increased to
$6.3 million for the year ended September 30, 1999 as compared to $1.3 million
for the year ended September 30, 1998. The increase was primarily related to the
construction costs and equipment purchased for the network infrastructure
enhancements of the three SuperPOP facilities during the year ended September
30, 1999. We anticipate that our depreciation and amortization expenses will
continue to increase significantly as we expand our network and data centers.
Net Loss and Loss Per Share. As a result of the above, we reported a net
loss of $43.4 million or $1.73 per share for fiscal 1999 as compared to a net
loss of $11.2 million or $0.77 per share for the year ended September 30, 1998.
YEAR ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1997
Revenues. Total revenues for the year ended September 30, 1998 increased
18.4% to $20.6 million from $17.4 million for the year ended September 30, 1997.
Revenues from the Server Sales and Integration Division for the year ended
September 30, 1998 decreased 5.6% to $14.1 million from $15.0 million for the
year ended September 30, 1997. This decrease was primarily attributable to lower
unit sales partially offset by a planned shift in product mix toward higher
priced and higher margin products. Revenues from the Internet Division increased
167.1% to $6.4 million for the year ended September 30, 1998 from $2.4 million
for the year ended September 30, 1997. This increase was primarily attributable
to an increase in the number of customers to which we provided Internet access
services. The increase in percentage of Internet Division revenues as a
percentage of total revenues reflected our shift in product mix toward
Internet-related sales.
Cost of Revenues. Cost of revenue for the year ended September 30, 1998
was $13.3 million or 64.7% of total revenues as compared to $13.7 million or
78.7% of total revenues for the year ended September 30, 1997. The decrease in
cost of revenue in absolute dollars and as a percentage of total revenues was
primarily a result of an increase in higher margin Internet revenues as a
percentage of total revenue.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended September 30, 1998 were $10.7 million or 51.9% of
total revenues as compared to $6.0 million or 34.7% of total revenues for the
year ended September 30, 1997. This increase in absolute dollars and as a
percentage of total revenues was primarily attributable to an increase in sales
and marketing, engineering, training and administration personnel necessitated
by the growth in Internet-related operations. The number of employees increased
from 90 as of September 30, 1997 to approximately 170 as of September 30, 1998.
We increased expenditures in advertising from $325,000 for the year ended
September 30, 1997 to $1.3 million for the year ended September 30, 1998.
Interest and Financing Expenses and Interest Income. Interest expense for
the year ended September 30, 1998 was $8.4 million as compared to $0.2 million
for the year ended September 30, 1997. The increase in interest expense is a
result of the 13% senior notes completed in April 1998. The increase in interest
income reflects the increased cash position derived from the net proceeds of the
13% senior notes. We amortized debt discount and issuance costs of $8.9 million
associated with the 13% senior notes over seven years.
Depreciation and Amortization. Depreciation and amortization increased to
$1.3 million for the year ended September 30, 1998 as compared to $675,000 for
the year ended September 30, 1997. The increase was primarily related to
equipment purchased for use in the Internet Division during the year ended
September 30, 1998.
Net Loss and Loss Per Share. As a result of the above, we reported a net
loss of $11.2 million or $0.77 per share for fiscal 1998 as compared to a net
loss of $3.1 million or $0.25 per share for the year ended September 30, 1997.
27
<PAGE> 32
LIQUIDITY AND CAPITAL RESOURCES
We have historically had losses from operations, which have been funded
primarily through borrowings, including capital lease financings from vendors
and financial institutions, and through the issuance of debt and equity
securities. In fiscal 1999, we received net proceeds of approximately $136.6
million from equity financings.
On December 3, 1999, Globix issued $80.0 million in new Series A
convertible preferred stock to affiliates of Hicks, Muse, Tate & Furst
Incorporated to expand our build-out of SuperPOPs and other facilities. The
preferred stock is convertible at $10.00 per share into common stock at any time
and cannot be called for redemption for five years. Under the agreement, the
Series A convertible preferred stock is subject to mandatory redemption in 2014
and yields an annual dividend rate of 7.5% payable quarterly in cash or
additional preferred stock at the option of Globix. As a result of this
investment, Hicks Muse beneficially owns approximately 19% of Globix's
outstanding common stock on an as-converted basis.
As of December 31, 1999, we had $202.6 million of cash, cash equivalents,
restricted cash, restricted investments and marketable securities. At December
31, 1999, we had working capital of approximately $154.2 million, as compared to
working capital of approximately $101.2 million at September 30, 1999. Working
capital increased $53.0 million primarily because of the $75.6 million net
proceeds from the convertible preferred stock offering partially offset by the
net loss of $20.8 million (including $3.4 million of non-cash depreciation and
amortization expense and approximately $0.2 million of non-cash amortization of
debt discount and issuance costs).
On February 8, 2000, Globix commenced a tender offer to purchase for cash
any and all of its outstanding 13% senior notes due 2005, $160.0 million in
principal amount. The purchase price in the tender offer was 106.5% of the
principal amount, plus accrued and unpaid interest. Concurrent with the offering
of the old notes, Globix received the consent of the beneficial holders of a
majority of the outstanding 13% senior notes to amend the indenture to eliminate
most of the restrictive covenants governing the 13% senior notes. A supplemental
indenture reflecting these amendments to the indenture was executed on February
4, 2000.
On February 8, 2000, we received net proceeds of approximately $582.0
million (exclusive of transaction costs) from the issuance of the notes.
The tender offer closed in March 2000 and 100% of the $160.0 million
principal amount 13% senior notes were tendered to Globix for purchase. Globix
purchased these 13% senior notes with $170.4 million from the net proceeds from
the sale of the old notes.
We believe that with the net proceeds from the notes offering, combined
with cash flows from operations and available credit facilities and capital
lease financings, we have sufficient cash to meet currently anticipated working
capital and capital expenditure requirements at least through March 31, 2001.
CONVERSION TO THE EURO
On January 1, 1999, eleven of the fifteen member countries of the European
Union established a fixed conversion rate between their existing sovereign
currencies and a new currency called the "Euro." These countries have agreed to
adopt the Euro as their common legal currency on that date. The Euro trades on
currency exchanges and is available for non-cash transactions. Thereafter and
until January 1, 2002, the existing sovereign currencies will remain legal
tender in these countries. On January 1, 2002, the Euro is scheduled to replace
the sovereign legal currencies of these countries.
Globix's international expansion to date has been primarily in the United
Kingdom, which has not adopted the Euro. Globix does not anticipate that the
implementation of the Euro will have a material adverse effect on its business
operations as the operations of Globix expands into other European countries.
However, there are no assurances that the implementation of the Euro will not
have a material adverse affect on Globix's business, financial condition and
results of operations. In addition, Globix cannot accurately predict the impact
the Euro will have on currency exchange rates or Globix's currency exchange
risk.
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BUSINESS
We are a leading full-service provider of sophisticated Internet solutions
to businesses. Our solutions include secure and fault-tolerant Internet data
centers, high performance network connectivity to the Internet, hosting and
support for complex Internet-based applications. These three major elements of
our total Internet solution combine to provide our customers with the ability to
create operate and scale their increasingly complex Internet operations in a
cost-efficient manner.
Our customers primarily use our products and services to maintain complex
computer equipment in a secure fault-tolerant environment with connectivity to a
high-speed, high-capacity, direct link to the Internet and to support complex
Internet applications. We currently offer our products and services from our new
SuperPOP facilities in New York City, London and Santa Clara, California. Our
teams of account managers, computer system and network engineers and customer
support specialists are located at each SuperPOP. Our strong local market
presence enables us to evaluate the needs of our customers and quickly respond
with tailored solutions. We also provide our customers the ability to outsource
the systems administration and technical management of their Internet presence.
Our products are flexible and scaleable, allowing us to modify the size and
breadth of the services we provide. We believe that our ability to offer a broad
range of Internet products and services, combined with our local sales and
support professionals and high performance Internet data center facilities and
network, differentiates us from our competitors.
INDUSTRY OVERVIEW
The Internet has experienced rapid growth and has emerged as a global
medium for communications and commerce. Internet access and value-added Internet
services represent two of the fastest growing segments of the telecommunications
services market. The Internet's growth is driven by a number of factors,
including the large and increasing number of personal computers in the office
and in the home linked to the Internet, advances in network designs, increased
availability of Internet-based software and applications, the emergence of
useful content and electronic commerce technologies, and convenient, fast and
inexpensive Internet access. According to Dataquest/Gartner Group, an
independent research firm, the total number of Internet users worldwide reached
approximately 129 million in 1998 and is forecast to increase to approximately
404 million by 2003. According to Dataquest, total worldwide Internet service
provider revenues, including both corporate and residential access, are
projected to grow from approximately $17.0 billion in 1998 to approximately
$49.4 billion in 2003. Forrester Research, another independent research firm,
has estimated that the number of U.S. enterprises online will increase from
approximately 1.8 million in 1998 to approximately 4.3 million in 2003.
Businesses initially established corporate Internet sites as a means to
improve internal and external corporate communications. Today, businesses are
increasingly utilizing the Internet for functions critical to their core
business strategies, such as sales and marketing, customer service and project
coordination. The Internet presents a compelling profit opportunity for
businesses as it enables them to reduce operating costs, access valuable
information and reach new markets. To maintain a significant presence on the
Internet, businesses typically purchase Internet access services and establish a
web site. Internet access provides companies with a basic gateway to the
Internet, allowing them to transfer e-mail, access information, and connect with
employees, customers and suppliers. Dataquest predicts that worldwide corporate
Internet access revenues will grow 27% annually from approximately $6.9 billion
in 1998 to approximately $22.7 billion in 2003. A web site provides a company
with a tangible identity and interactive presence on the Internet, allowing it
to post company information and automate business processes of providing product
information, order entry and customer service. According to International Data
Corp., revenues in the United States from value-added Internet services, such as
electronic commerce and security services, will grow 34% annually from
approximately $3.0 billion in 1998 to approximately $12.9 billion in 2003.
Forrester Research has estimated that the market for managed web site hosting in
the United States will grow from less than $1.0 billion in 1998 to over $14.0
billion in 2003. Dataquest predicts Europe will experience similar strong
growth, with corporate Internet access revenue increasing 40% annually from
approximately $1.7 billion in 1998 to approximately $9.1 billion in 2003.
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To ensure the quality, reliability and availability of their Internet
operations, corporate information technology departments make substantial
investments in developing Internet expertise and infrastructure. Information
technology groups are challenged by the need to implement their organizations'
Internet business strategy, adopt new and rapidly changing technologies and
continuously update content. The implementation, establishment and maintenance
of these solutions require significant technical expertise in electronic
commerce systems, security and privacy technologies, application and database
programming, mainframe and legacy system integration technologies and advanced
user interface and multimedia production.
Many businesses have chosen to outsource Internet application development,
implementation and support, particularly the hosting and management of their
Internet-based applications, to increase performance, provide continuous
operation and reduce Internet operating expenses. This follows an overall
movement toward outsourcing of information technology services. According to
Forrester Research, businesses in the United States are now spending
approximately 25% of their overall information technology budgets on external
service providers.
The rapidly growing need for Internet access and other Internet products
and services has resulted in a highly fragmented industry with the proliferation
of Internet service providers operating worldwide as well as within the United
States. These ISPs primarily consist of large national and global ISPs and
smaller local and regional ISPs. Large national and global ISPs generally focus
on Internet access and rely on indirect sales, telemarketing and remote network
operation centers to serve their customers. These large national and global ISPs
typically do not offer a full range of services. Smaller local or regional ISPs
typically focus on serving their local market and lack the resources to provide
and support a full range of Internet products and services. Accordingly, Globix
believes that the needs of businesses for comprehensive Internet products and
services are not being met by the larger national and global or smaller local
and regional ISPs that constitute most of Globix's competitors.
THE GLOBIX SOLUTION -- PRODUCTS AND SERVICES
Globix provides its customers with a comprehensive range of Internet
solutions. Many of Globix's customers do not have the network infrastructure or
Internet expertise to build, maintain and support critical Internet operations.
Globix's comprehensive range of products and services enable its customers to
address their needs cost-effectively without having to assemble products and
services from different suppliers, Internet service providers and information
technology firms, thereby significantly increasing the customer's ability to
take advantage of the Internet on a timely basis. Key components of the Globix
solution are:
Globix Facilities
Internet Data Centers. Globix operates state-of-the-art SuperPOP
facilities in New York City, London and Santa Clara, California, which have
increased its aggregate Internet data center capacity to approximately 63,000
square feet:
- 160,000 square foot facility located in New York City containing a 24,000
square foot Internet data center;
- 62,000 square foot facility located in Santa Clara, California containing
a 23,000 square foot Internet data center; and
- 35,000 square foot facility located in London's West End district
containing a 14,000 square foot Internet data center.
The SuperPOP facilities include:
Electrical Infrastructure. The Globix electrical infrastructure consists
of two major components: a distribution system and an emergency power generation
system. The distribution system is based on redundant diverse distributed
components consisting of demarcation power, power distribution units, static
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transfer switches, uninterruptible power supplies, and a utility service bus.
The emergency power system consists of automatic transfer devices, emergency
service bus, and emergency power generation. The Globix grounding and bonding
system is designed and installed to exceed the Telecommunications Industry
Association standards.
Precision Environmental Control Systems. Globix utilizes a closed loop
heat rejection system for environmental control. A closed loop system differs
from an open system in the way rejection is handled. In a closed loop system the
water used for heat rejection is circulated through a closed piping system and
large coils on heat rejection equipment cool the water. In an open system the
water is partially evaporated at a cooling tower to cool the water and must be
replenished constantly. While open loop systems are more economical to install
and operate, they will not function if the evaporated water is not replaced. In
the event of a water main outage, Globix can continue to operate because it uses
a closed loop system. The environmental control units maintain an average space
temperature of 72 degreesF at 50% relative humidity. Air filtration is
accomplished by the use of both pre-filters and high efficiency air filters.
FM-200 Fire Suppression System. The Globix FM-200 fire suppression systems
consist of both above and below raised floor detection systems, a central
control panel, abort stations, and FM-200 agent storage containers. The
detection system is capable of detecting a fire condition prior to a visible
smoke condition.
Comprehensive Security System. The Globix security system incorporates
distributed control with central monitoring located within the security center.
The use of distributed control with central monitoring prevents tampering at any
given point in the system without at least one other system being aware of the
tamper. The three components of the Globix security system are a comprehensive
state-of-the-art security system, trained security personnel, and closed circuit
television cameras. All primary entry and egress points have card access readers
installed. All Internet data center and support system area entries have
fingerprint biometric access devices installed. In addition, Globix security
personnel staff the facilities 24x7 while roving security personnel patrol the
exterior of the premises.
Co-Location. Globix offers co-location solutions for customers who choose
to own and maintain their own servers, but require the physically secure,
climate-controlled environment of the Globix Internet data centers. A Globix
customer can choose to co-locate in a cabinet, a cage or a GLOBOX(TM), Globix's
proprietary secured cage. A data cabinet, the smallest co-location service
offering, can house multiple servers. The cabinet is locked and outfitted for
multiple, redundant network hand-offs and two power feeds. A cage serves the
needs of a larger enterprise usually deploying the most complex solutions. The
cage is fabricated out of 12-gauge wire mesh, and is also secure with multiple
hand-offs. The GLOBOX co-location offering is identical to the cage except that
its walls are solid, two-ply steel and is available with a variety of security
devices for the client demanding the highest security and anonymity.
All co-location customers are furnished with two Globix ID badges,
identifying them as Globix customers, and giving them 24x7 access to their
equipment in our Internet data centers. This allows the customers to administer,
upgrade and maintain their own equipment on their own time schedule.
Alternatively, the customers can outsource the systems administration and
maintenance of their site. Globix supports a number of leading Internet hardware
and software platforms, including those from Check Point Software, Cisco,
Compaq, Microsoft, Netscape, Storage Technologies and Sun Microsystems. This
multi-vendor flexibility enables Globix to offer its clients a broad range of
technology best suited to serve their particular needs.
Globix Network
Network Infrastructure. The Globix network infrastructure is designed to
meet the service and quality requirements of businesses executing Internet-based
strategies. Globix's network infrastructure is designed for high availability,
low latency, and resiliency. Globix has instituted a general policy of keeping
its network infrastructure capacity significantly underutilized. This allows for
traffic spikes such as those created during large live streaming media events or
sudden increases in customer usage. Globix is one of a select few service
providers that uses global "cold-potato" routing. Cold-potato routing is a
technique
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whereby Globix's network equipment listens to additional routing information
supplied by its peers. By using this information, the Globix infrastructure
carries the traffic on its network to the common peering or traffic exchange
point nearest the origination point of the traffic request. This insures the
traffic is carried on a Globix-controlled network to the greatest extent
possible and therefore does not suffer from the congestion or high latency of
public networks.
Backbone. The Globix backbone is based on Asynchronous Transfer Mode
technology that is designed for the high-speed transfer of data and offers a
variety of quality of service options. Our ATM backbone rides over a protected
synchronous optical network. The current Globix domestic backbone connects the
SuperPOPs and backbone POPs with a ring topology. The London SuperPOP is
connected to Globix's domestic backbone by a protected transatlantic connection.
The total carrying capacity of the Globix backbone is 2.2 Gbs with a current
sustained utilization of 225 Mbs. Each of these POPs is connected to the Globix
backbone by multiple fault-tolerant connections. In addition, Globix connects to
numerous network access points, commercial Internet exchanges, and other
Internet, application, and network service providers. These connections are
provided by multiple carriers over diverse connections to diminish the negative
impact of the loss of a single connection.
Peering. Globix has established peering relationships with other Internet,
application, and network service providers. These peering relationships take the
form of either public or private peering. Public peering takes place at a
network access point or commercial Internet exchange, designed for the exchange
of network traffic between two service providers. Private peering involves an
agreement between two service providers allowing traffic to pass between each
other's networks by using connections that do not have to traverse the public
Internet or public peering points. Globix currently has agreements to peer with
more than 200 organizations that represent over 550 peering connections, making
it one of the largest peering Internet networks. Globix's current backbone
connects to points of presence at the following network access points and
commercial Internet exchanges: MAE-East ATM, MAE-West ATM, MAE-East FDDI,
MAE-West FDDI, Ameritech NAP, Sprint NAP, Pacific Bell NAP, NASA Ames, NYIIX,
LINX, LoNAP, D-GIX, AMSIX, deCIX, MIXITA, SFINX and CIXP.
Network Operations. Globix has constructed a global operations center
located at the SuperPOP in New York City. The global operations center serves as
the command, control and communications center for all of Globix's network
operations, customer support centers, and points of presence. The global
operations center is staffed 24x7 by teams dedicated to maintaining the highest
quality of service. Network administrators located in the global operations
center monitor Globix's entire network infrastructure. The network
administrators are able to identify and correct network problems either
themselves or by dispatching system engineers located at Globix's customer
support centers. The global operations center utilizes state-of-the-art
equipment and technologies, including custom applications and commercial
software for the monitoring and management of network and systems services, a
suite of commercial tools customized for problem identification and resolution
for both technology and non-technology assets, and a knowledge database of
customer information and history. The global operations center's call center is
equipped with advanced telecommunications systems capable of automatic call
distribution, automatic number identification, quality assurance recording and
archiving, and intelligent call routing.
Customer Support Center. Each of the Globix SuperPOP facilities contains a
customer support center staffed 24x7 by system administrators, network
administrators and Internet data center technicians. These employees are
responsible for monitoring, maintenance and administration of Globix's SuperPOP
infrastructure and customer equipment.
Dedicated Internet Access. Globix offers a variety of dedicated Internet
access solutions, which provide businesses high-speed continuous access to the
Internet. Globix provides dedicated Internet access services to customers at
transmission speeds up to 155Mbps. The majority of Globix's Internet access
customers purchase 1.5Mbps or higher levels of service. In addition, Globix
provides provisioning services, such as domain name registration, local loop
provisioning, Internet address assignment, router configuration, e-mail
configuration, security planning and management technical consulting services.
All of Globix's Internet access customers receive 24x7 technical support. Globix
also provides new access
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technologies, such as digital subscriber lines through a strategic relationship
with Covad Communications, and intends to deploy additional connectivity-related
enhanced services as such services become commercially viable.
Application Services
Hosting. Globix offers cost-efficient hosting solutions on both the NT and
UNIX platforms, in either a dedicated or shared server environment. Dedicated
hosting is designed for businesses with special bandwidth requirements,
application requests or security needs. Globix customizes server and software
configurations that tailor bandwidth, processor speeds and memory requirements
to customer-specific needs. Globix's hosting services are tailored to web sites
which require 100% availability and scaleability without significant
infrastructure and overhead costs. Shared hosting means that the customer's
content is on a server with several other clients. While this shared environment
does not affect performance, flexibility is limited by community rules that
govern the overall server. All hosting services are provided from Globix's
secure, state-of-the-art Internet data centers, utilizing 24x7 monitoring
systems and the power of Globix's high-capacity network.
Streaming Media. Globix is a leading provider of streaming media services.
These services include the three main components of streaming media technology:
production, encoding and hosting. Production involves creating a video and/or
audio recording of an event, such as a music performance, sports competition or
business meeting. Encoding is converting the recording into a form that can be
sent over the Internet. Hosting provides access to the encoded stream for
Internet users via live, archived or pay-per-view formats. Globix has produced,
encoded and/or hosted several hundred events including: Eric Clapton, David
Bowie, Rod Stewart and Korn concerts, New York State Governor George Pataki's
State-of-the-State address, and a tradeshow keynote address by Cisco CEO John
Chambers. We also recently webcast the Holyfield/Lewis championship boxing match
and Paul McCartney's live Cavern Club concert. Globix has developed a
proprietary hardware and software system, called the RoadEncode(TM), which
facilitates on-site encoding and streaming of live events. Globix currently has
deployed five RoadEncode units and uses them to webcast multiple events. Globix
believes that it is one of the few providers that offer expertise in all three
components of streaming media technology.
Electronic Commerce Solutions. Globix offers project management services
of commerce-enabling solutions for its hosting and co-location customers. Some
of these services include: business to consumer (i.e. shopping cart solutions),
business to business, warehousing logistics and fulfillment solutions, pay-per-
view and fully integrated turnkey electronic commerce solutions that simplify
and facilitate online commerce.
Solutions Architecture. Globix's solutions architects provide its
customers with design resources from a variety of specialized disciplines that
are not readily available from their internal resources or require skill sets
beyond those typically found in system administrators. Typical solutions include
geographic distribution which routes Internet users to the closest site, high
availability server farms where high traffic volume is balanced among multiple
servers, and fault-tolerant network security systems.
System and Network Administration. Globix provides full life cycle system
and network administration. At project inception, Globix installs and configures
applications and equipment as designed by Globix solutions architects or as
specified by the customer. As most Internet business strategies require
dedicated highly skilled technical resources available 24x7, it becomes evident
to most businesses that these skills are not readily available within the staff
core to their business. Globix offers services to its customer base at each of
its SuperPOP facilities for the administration, maintenance, and problem
resolution of a variety of popular operating systems and Internet-based
applications.
Internet Server and Application Sales
Server and application sales is an integral part of providing our customers
with a sophisticated end-to-end solution. As part of Globix's integrated
approach, we sell our customers both the servers and the applications they need
in order to operate and expand their Internet presence. Globix also provides the
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integration services to configure both software and servers to client needs.
Working in close cooperation with a number of leading server and application
manufacturers, such as Check Point Software, Cisco, Compaq, Microsoft, Netscape
and Sun Microsystems, we provide our customers with optimal solutions.
GROWTH STRATEGY
Globix's objective is to become the leading provider of sophisticated
Internet solutions to business enterprises in key global markets. To achieve
this objective, Globix intends to:
Continue to Invest Extensively in Infrastructure. Globix intends to
capitalize on the trend by corporate information technology departments to
outsource critical Internet operations by continuing to make significant
investments to improve and expand its infrastructure. During 1999, Globix's new,
geographically diverse SuperPOP facilities increased our total Internet data
center capacity from approximately 2,000 square feet to approximately 63,000
square feet. In addition, Globix has established POPs or network access points
in Chicago, Washington D.C., Amsterdam, Frankfurt, Geneva, Milan, Paris and
Stockholm. Globix also believes it can achieve significant economies of scale by
leveraging the fixed costs associated with its network infrastructure and
Internet data center facilities resulting in a scaleable and flexible solution
for our customers. In August 1999, Globix entered into a strategic agreement
with NetSat Express, Inc., a subsidiary of Globecomm Systems Inc., whereby
Globix will utilize NetSat Express' satellite-based Internet access services for
connection of certain foreign peering points to the U.S. Internet. Globix
believes that this relationship with NetSat Express will enable it to establish
a presence in global business markets that are not otherwise connected to
Globix's network, and for which connecting such markets to Globix's network by
traditional means would be cost prohibitive.
Strategically Locate Near Customers. Globix's close proximity to its
customers, combined with a broad range of services, makes it convenient for
customers to maintain or co-locate their equipment at Globix's facilities and
meet with account managers, technicians, engineers and customer support staff.
Globix's new SuperPOP facilities in New York City, London and Santa Clara,
California are strategically located near our targeted customer base of business
enterprises. Globix believes that maintaining a strategic local presence near
its customers provides it with an advantage over competitors that utilize
centralized telecenters and network operations centers.
Expand Product and Service Offerings. Globix seeks to continually expand
the breadth of its product and service offerings using new technologies to
enable its customers to better utilize the Internet.
Cross-sell Additional Products and Services. Globix seeks to attract and
retain new customers, as well as leverage its customer base, by cross-selling
additional products and services to existing customers. Globix consults on a
regular basis with its customers in order to better understand their growing
requirements for Internet products and services and actively seeks to cross-sell
additional products and services to address these requirements. The new SuperPOP
facilities have significantly increased Globix's capacity and enable it to more
effectively sell hosting and co-location services and value-added Internet
products across its customers' geographically disparate locations. Globix
believes that this strategy will expand the number of customers for its products
and services and enable it to become a more integral component of its current
customers' information technology infrastructure.
Enhance the Globix Brand Name in Target Markets. Globix seeks to expand
market share, increase customer loyalty and develop brand recognition in key
business markets by combining targeted branding initiatives with its strong
local presence. Globix has established a print advertising campaign in order to
enhance brand recognition for Globix on a worldwide basis. Globix advertises in
major business publications and trade journals targeted to business and
technical Internet decision-makers. These publications include Fortune, Business
2.0, CIO, Computer World, Internet Week, Network Computing, Network World, PC
Week, Information Week and PC Magazine in the U.S. and similar titles in the
U.K. In addition, Globix has increased its presence at industry trade shows in
both the U.S. and U.K., such as ISPCON, PC Expo, Streaming Media East/West,
Siebold and the Internet World shows in both the U.S. and U.K. Globix plans to
continue to aggressively build brand recognition by marketing its full range of
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services through an advertising campaign using traditional media, online
campaigns and joint-promotions with key hardware and software vendors.
Make Strategic Investments and Acquisitions. Globix may make strategic
investments in smaller Internet service and design companies which may enter
into long-term, exclusive agreements for Globix to provide hosting, co-location
and dedicated Internet access services. Globix may also make acquisitions to
deepen and broaden its market presence, expand its strengths in Internet
connectivity, co-location, hosting and add to or enhance its line of Internet
products and services. Recent examples of strategic investments include (i) the
$2.0 million investment in EDGAR Online, Inc., the publisher of
"edgar-online.com" and "freeedgar.com," whereby Globix received the exclusive
right for a five-year period to provide hosting services to EDGAR Online and
(ii) the $5.0 million investment in NetSat Express, a provider of satellite-
based Internet access and voice, data and video communication services, whereby
NetSat Express will acquire Internet access and virtual private network services
from Globix and Globix will utilize NetSat Express' Internet protocol based
satellite services for connection of certain foreign peering points to the
Internet. Globix may also enter into strategic alliances with selected computer
hardware and software manufacturers.
CUSTOMERS
Globix has established a diversified base of Internet customers in a
variety of Internet-intensive industries, such as media and publishing,
financial services, retail, healthcare and technology. Since initiating Internet
services in December 1995, Globix's customer base has grown to over 1,600
business customer accounts, including Acclaim Entertainment, Ebookers.com,
Edgar-Online Inc., GiftCertificates.com, Major League Soccer, Microsoft, New
York Post, S3/Diamond Multimedia and Times Square 2000.
SALES AND MARKETING
Globix has built its sales and marketing approach to respond effectively to
the growing opportunities in the corporate Internet market. Globix combines the
technical skills and experience of its direct sales force with the sales and
marketing resources available to it through its strategic alliances with
selected hardware and software manufacturers. As a result, Globix offers its
products and services to a broad and diverse range of customers in its targeted
markets through the following sales channels and marketing efforts:
Direct Sales. Globix maintains a direct sales force of account managers.
Because they are locally based, these account managers are able to meet
face-to-face with prospective customers to discuss their Internet needs and
technical requirements and develop tailored solutions. Direct marketing tactics
used include direct contacts with potential corporate accounts by the account
managers and computer systems engineers, direct mail, telemarketing, seminars
and trade show participation. Globix has developed compensation and training
programs to attract and train high quality, motivated account managers. As of
December 31, 1999, Globix had a direct sales force including over 100 account
managers.
Strategic Alliances. Globix has established a number of strategic
alliances with selected computer hardware and software manufacturers, including
Microsoft, Sun Microsystems, Check Point Software and RealNetworks. These
alliances give Globix access to potential Internet service customers in the
manufacturer's customer base, while enabling the manufacturers to offer their
customers an integrated package of hardware, software and Internet services and
products. Globix also seeks to establish multi-tier distribution relationships
with suppliers and other sales agents and representatives, either directly or
through distributors. Globix believes that these strategic alliances provide
Globix the opportunity to cost-effectively add new customers. Globix jointly
markets with these vendors through direct mail programs, joint seminar
development and joint trade show involvement. In addition, our strategic
relationship with NetSat Express gives us access to its customer base.
Marketing. Globix's marketing program is intended to build national and
local strength and awareness of the Globix brand. Globix uses print and
electronic media advertising in targeted markets and
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publications to enhance awareness and acquire leads for its direct sales team.
Globix's print advertisements are placed in business magazines, trade journals,
local technology sections of newspapers and special-interest publications.
Globix creates brand awareness by participating in industry trade shows such as
Internet World and PC Expo. Globix also uses direct mailings, telemarketing
programs, Internet marketing, joint marketing and promotional efforts to reach
new corporate customers. Customers and prospects are directed to the corporate
web site at www.globix.com for information about our products and services.
Inquires are handled via web based electronic forms. The web site is a critical
element of our customer service and brand identity and is promoted through links
with alliance partners' web sites, paid banners and print promotions.
COMPETITION
The market served by Globix is intensely competitive, and competition is
increasing. There are few substantial barriers to entry, and Globix expects
additional competition from existing competitors and new market entrants in the
future.
Globix believes that superior facilities, a reliable network, a broad range
of quality products and services, a knowledgeable sales force and the quality of
customer support currently are the primary competitive factors in Globix's
targeted market and that price is generally secondary to these factors. Globix's
current and potential competitors in the market include other Internet service
providers and global, regional, and local telecommunications companies.
Other Internet Service Providers. Globix's current and potential
competitors in the market include Internet service providers with a significant
national or global presence that focus on business customers, such as DIGEX,
Digital Island, Exodus, Global Crossing's GlobalCenter, NaviSite, PSINet and
UUNet. While Globix believes that its level of customer service and support and
target market distinguish it from these competitors, many of these competitors
have greater financial, technical, and marketing resources, larger customer
bases, greater name recognition, and more established relationships in the
industry than Globix.
Telecommunications Carriers. Many long distance and cable companies
including AT&T, British Telecom, Cable & Wireless, Level 3, MCI WorldCom, Qwest
and Sprint offer Internet access services and compete with Globix. Recent
changes in federal regulation have created greater opportunities for
telecommunications companies to enter the Internet access market. Globix
believes that there is a move toward horizontal integration by
telecommunications companies through acquisitions of or joint ventures with ISPs
to meet the Internet access requirements of the business customers of long
distance and local carriers. Accordingly, Globix expects that it will experience
increased competition from the traditional telecommunications carriers. In
addition to their greater network coverage, market presence, and financial,
technical, and personnel resources, many of these telecommunications carriers
also have large existing commercial customer bases.
Other Competitors. Because Globix offers a broad range of products and
services, it encounters competition from numerous businesses that provide one or
more similar products or services. For example, Globix encounters competition
from numerous manufacturers and resellers of computer equipment and providers of
video streaming. We do not believe that any of the competitors in our target
market offer a range of Internet products and services as broad as the range we
offer.
GOVERNMENT REGULATION
In the United States and the other countries in which Globix conducts its
business, Globix is not currently subject to direct regulation other than
pursuant to laws applicable to businesses generally, including businesses
operating on the Internet. However, it is likely that laws and regulations will
be adopted, implemented and challenged at the international, federal, state or
local levels with respect to the Internet, covering issues such as user privacy,
freedom of expression, pricing, characteristics and quality of products and
services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. Moreover, a number
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<PAGE> 41
of laws and regulations are currently being considered by federal, state and
foreign legislatures with respect to such issues. The nature of any new
international, federal, state or local laws and regulations and the manner in
which existing laws and regulations may be interpreted and enforced cannot be
fully determined. The adoption of any future laws or regulations or the adverse
application of existing laws to the Internet industry might decrease the growth
of the Internet, decrease demand for services of Globix, impose taxes or other
costly technical requirements or otherwise increase the cost of doing business
or in some other manner have a material adverse effect on Globix or its
customers, each of which could have a material adverse effect on Globix's
business, results of operations and financial condition.
EMPLOYEES
As of December 31, 1999, Globix had approximately 510 full-time employees:
approximately 440 in the United States and 70 outside the United States,
including approximately 205 in technical/operational and customer service, 185
in sales and marketing and 120 in general and administrative positions. In
addition to its full-time employees, Globix also employs part-time personnel
from time to time in various departments. None of Globix's employees is covered
by a collective bargaining agreement. Globix believes that its employee
relations are satisfactory.
FACILITIES
In July 1998, Globix purchased the land and the nine-story building located
at 139 Centre Street, New York, New York. This facility houses Globix's SuperPOP
in New York, the global operations center and administrative offices. In January
2000, Globix obtained a $21.0 million loan secured by a first mortgage on this
facility.
Globix also leases approximately 32,000 square feet at 295 Lafayette
Street, New York, New York. This facility houses Globix's original New York
Internet data center and certain administrative offices.
In July 1998, Globix signed a triple net lease commencing January 15, 1999
to rent space in Santa Clara, California. In October 1998, Globix signed a lease
for the rental of space at Prospect House, 80 New Oxford Street, London,
England. These facilities were completed in July 1999 and each houses a
SuperPOP, which includes an Internet data center, and facilities for technical,
sales and administrative personnel.
The following table sets forth additional information concerning Globix's
facilities:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
LOCATION EXPIRATION DATE IF LEASED GROSS SQUARE FEET
- -------- ------------------------- ---------------------
<S> <C> <C>
295 Lafayette Street 2007 32,000
New York, New York
139 Centre Street Owned 160,000
New York, New York
2807 Mission College Boulevard 2014 62,000
Santa Clara, California
Prospect House 2014 35,000
80 New Oxford Street
London, United Kingdom
</TABLE>
LEGAL PROCEEDINGS
From time to time Globix is involved in routine litigation in the ordinary
course of business. We believe that no currently pending litigation to which
Globix is a party will have a material adverse effect on our financial position
or results of operations.
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<PAGE> 42
MANAGEMENT
The directors, executive officers, and other key employees of Globix, and
their ages and positions as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Marc H. Bell......................... 32 Chairman, President, Chief Executive Officer and
Director
Robert B. Bell....................... 60 Executive Vice President and Director
Marc Jaffe........................... 32 Senior Vice President, Chief Operating Officer
Anthony L. Previte................... 34 Senior Vice President, Chief Technology Officer
Brian L. Reach....................... 44 Senior Vice President, Chief Financial Officer
Paul L. Bonington.................... 40 Vice President, Marketing
Shawn P. Brosnan..................... 37 Vice President and Corporate Controller
Alayne C. Gyetvai.................... 41 Vice President and General Manager
John C. Moore........................ 51 Vice President and General Manager
Christopher D. Peckham............... 34 Vice President, Network Engineering
Lord Anthony St. John................ 42 Vice President, Business Development, and Director
Daniel Utevsky....................... 49 General Counsel
Martin Fox........................... 63 Director
Jack D. Furst........................ 40 Director
Michael J. Levitt.................... 41 Director
Sid Paterson......................... 58 Director
Tsuyoshi Shiraishi................... 54 Director
Dr. Richard Videbeck................. 75 Director
</TABLE>
MARC H. BELL has been the President and Chief Executive Officer since he
founded Globix in 1989. Mr. Bell was elected Chairman of Globix in November
1999. He has appeared on numerous television broadcasts and has been quoted in
several national publications regarding Internet-related topics. Mr. Bell is a
member of the Board of Directors of EDGAR Online, Inc., the publisher of the web
sites "edgar-online.com" and "freeedgar.com." He has a Bachelor of Science
degree in accounting from Babson College and an M.S. degree in real estate
finance from New York University. Mr. Bell is the son of Robert B. Bell.
ROBERT B. BELL has served as Executive Vice President of Globix since 1994.
He also served as Chief Financial Officer from 1994 through September 1999. Mr.
Bell is also the Managing Director of Globix's U.K. subsidiary. Mr. Bell spent
three years at Coopers & Lybrand. Thereafter, he was a practicing attorney in
New York City at the firm of Bell, Kalnick, Beckman, Klee and Green, which Mr.
Bell founded in the early 1970s, and specialized in taxation, investments and
international real estate joint ventures. He is the author of Joint Ventures in
Real Estate published by John Wiley & Sons. Prior to 1994, Mr. Bell was for many
years an Adjunct Professor at New York University. He has a Bachelor of Science
degree from New York University and a J.D. degree from the University of
California at Berkeley. Mr. Bell is the father of Marc H. Bell.
MARC JAFFE, Senior Vice President, Chief Operating Officer, joined Globix
in January 1995. Prior to joining Globix, Mr. Jaffe was a department manager at
Sid Paterson Advertising Inc. in New York City, which he joined in 1989. He
developed an Internet-focused marketing strategy that won the prestigious
CreaTech Award in 1996, presented by Advertising Age magazine, and has spoken at
numerous Internet conferences. Mr. Jaffe graduated from Colgate University,
where he received a Bachelor of Arts degree.
ANTHONY L. PREVITE, Senior Vice President, Chief Technology Officer, joined
Globix in October 1998. From July 1991 to October 1998, Mr. Previte was the Vice
President, Special Projects for Emcor Group, Inc., a publicly traded electrical
and mechanical engineering and construction firm. While at Emcor Group, Mr.
Previte was involved in the design and construction of over one million square
feet of secure
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<PAGE> 43
data center facilities for companies such as Prudential Securities, Morgan
Stanley and Nomura Securities. Mr. Previte has a degree in aerospace engineering
from Polytechnic Institute of New York.
BRIAN L. REACH, Senior Vice President, Chief Financial Officer, joined
Globix in September 1999. From May 1997 to August 1999, Mr. Reach was the Chief
Financial Officer of IPC Communications, a provider of integrated
telecommunications equipment and services to the financial industry. During his
tenure at IPC, Mr. Reach successfully guided IPC through its leveraged
recapitalization and financially restructured IPC enabling it to invest in
strategic acquisitions and next generation technologies. From November 1993 to
April 1997, Mr. Reach was the Chief Financial Officer of Celadon Group, Inc. Mr.
Reach is a certified public accountant and received his Bachelor of Science
degree in accounting from the University of Scranton.
PAUL L. BONINGTON, Vice President, Marketing, joined Globix in May 1999.
From August 1994 to February 1999, Mr. Bonington was an executive with
Mecklermedia Corporation, a producer of Internet publications, trade shows and
web sites. In 1998, he was named Mecklermedia's Senior Vice President of
Strategic Planning and Marketing. From 1994 to 1997, Mr. Bonington headed
Mecklermedia's print division as Publisher of Internet World magazine, and later
as Senior Vice President/Group Publisher following the launch of Web Week, Web
Developer and Internet Shopper magazines. Mr. Bonington has a Bachelor of
Science degree in business economics from the State University of New York,
Oneonta.
SHAWN P. BROSNAN, Vice President and Corporate Controller, joined Globix in
November 1999. Prior to joining Globix, Mr. Brosnan spent over 15 years with
Ernst & Young, one of the leading professional services organizations worldwide.
During his tenure at Ernst & Young, he was a business advisor with extensive
experience in the areas of accounting, finance, financial reporting, mergers and
acquisitions and process improvement. Mr. Brosnan is a certified public
accountant and received his Bachelor of Science degree in accounting from
Providence College.
ALAYNE C. GYETVAI, Vice President and General Manager, joined Globix in
January 1999. From September 1994 to August 1998, Ms. Gyetvai held senior-level
positions at Silicon Graphics, Inc., most recently as the Director of Global
Professional Services and Global Web Implementation. From January 1989 to
September 1994, Ms. Gyetvai served as a Site Manager, Senior Systems Engineer
and Senior Consultant for Sun Microsystems. Ms. Gyetvai earned a Bachelor's
degree in computer science and a Masters in probability mechanics from the
University of Colorado and a Bachelor's degree in electrical engineering and
computer engineering from the University of New Mexico.
JOHN C. MOORE, Vice President and General Manager, joined Globix in October
1999. From 1988 to 1999, Mr. Moore held senior-level positions at Sherpa
Corporation, a provider of enterprise web-based application software, most
recently as its President and Chief Executive Officer. From 1988 to 1993, he was
Vice President and Managing Director of Sherpa's European operations based in
London. Mr. Moore has a Bachelor of Science Honours degree in mechanical
engineering from London University.
CHRISTOPHER D. PECKHAM, Vice President, Network Engineering, rejoined
Globix in February 1999. From August 1997 to February 1999, Mr. Peckham was
Manager of Network Engineering for ICON, a national Internet service provider.
From August 1995 through August 1997, Mr. Peckham served as Senior Systems and
Networking Administrator for Globix. From May 1995 through August 1995, he held
the position of Director of Technology for the Interactive Media Division of
Database America. Mr. Peckham has Doctoral, Master and Bachelor of Science
degrees in electrical engineering from the New Jersey Institute of Technology.
ANTHONY ST. JOHN, LORD ST. JOHN OF BLETSO, Vice President, Business
Development has been a director of Globix since October 1997. In September 1999,
Lord St. John became Globix's Vice President, Business Development. Since 1978,
Lord St. John has served as a sitting member of the House of Lords of the
Parliament of the United Kingdom and an Extra Lord-in-Waiting to Her Majesty the
Queen. He is also a member of The House of Lords' European Union Sub-Committee
on Economic and Financial Affairs, Trade and External Relations. Since 1993, he
has served as a consultant to Merrill Lynch and is a Registered Representative
of the London Stock Exchange. Lord St. John is a director of Skinvisible, Inc.,
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<PAGE> 44
a developer and marketer of skin protector products. He is also a director of
Globix's U.K. subsidiary and serves as its Director of Business Development. He
received his Bachelor of Arts and Bachelor of Science degrees from Capetown
University and Bachelor of Laws from the University of South Africa and a
Masters of Law from the London School of Economics.
DANIEL UTEVSKY, General Counsel, joined Globix in December 1999. From July
1993 to November 1999, Mr. Utevsky was Vice President, General Counsel and
Corporate Secretary of IPC Communications, a provider of integrated
telecommunications equipment and services to the financial industry. He also
held similar positions within the IPC group, including IXnet, Inc., IPC's global
telecommunications network subsidiary. During his tenure with IPC, Mr. Utevsky
assisted it in its development from a privately held company through its public
offerings and leveraged recapitalization. Mr. Utevsky was admitted to the New
York bar in 1984. He received his Bachelor of Business Administration degree in
economics from the University of Memphis and a J.D. degree from Benjamin N.
Cardozo School of Law.
MARTIN FOX has been a director of Globix since October 1995. Mr. Fox has
been, for more than five years, the President, Chief Executive Officer, and a
director of Initio, Inc., a publicly owned company, which has been an electronic
commerce and catalogue specialty retailer of consumer products.
JACK D. FURST has been a director of Globix since December 1999. Mr. Furst
has been a partner of Hicks, Muse, Tate & Furst Incorporated since 1989. Mr.
Furst serves as a director of American Tower Corporation, Cooperative Computing,
Inc., Hedstrom Holdings, Inc., Home Interiors & Gifts, Inc., International Wire
Group, Inc., LLS Corp., Triton Energy Limited and Viasystems, Inc. Mr. Furst
received his B.S. degree from the College of Business Administration at Arizona
State University and his M.B.A. from the Graduate School of Business at the
University of Texas.
MICHAEL J. LEVITT has been a director of Globix since December 1999. Mr.
Levitt has been a partner of Hicks, Muse, Tate & Furst Incorporated since 1996.
From 1993 through 1995, Mr. Levitt was a Managing Director and Deputy Head of
Investment Banking with Smith Barney Inc. Mr. Levitt serves as a director of
AMFM Inc., Awards.com, El Sitio, Inc., G.H. Mumm/Perrier/Jouet, Grupo MVS, S.A.
de C.V., Ibero-American Media Partners II Ltd., International Home Foods, Inc.,
Regal Cinemas, Inc., RCN Corporation and STC Broadcasting, Inc. Mr. Levitt
attended the University of Michigan, from which he received his B.B.A. and J.D.
SID PATERSON has been a director of Globix since February 1998. He has been
President and Chief Executive Officer of Sid Paterson Advertising Inc. for more
than five years.
TSUYOSHI SHIRAISHI has been a director of Globix since July 1994. Mr.
Shiraishi has been the Chairman of Century World PTE Ltd., an investment
consulting firm, and the Managing Director of Harpoon Holdings Ltd., a British
Virgin Islands holding company, since 1992. From 1990 to 1994, he was the
Director of Marketing & Investment for Kajima Overseas Asia PTE Ltd., a
subsidiary of Kajima Corporation, an international construction company. In
addition, since 1990, Mr. Shiraishi has been Vice Chairman of Century
International Hotels, which operates and manages 21 hotels in the Pacific Rim.
DR. RICHARD VIDEBECK has been a director of Globix since October 1995.
Since 1983, Dr. Videbeck has been an independent consultant in consumer risk
analysis, particularly for retailers and banks. From 1974 until 1986, he was a
Professor of Sociology at the University of Illinois at Chicago. From 1974 until
1977, Dr. Videbeck was the Dean of the Doctor of Arts Program of the Graduate
College of the University of Illinois at Chicago.
DIRECTOR COMPENSATION
Each director of Globix, who does not beneficially own more than 5% of
Globix's outstanding common stock, receives annually (on the date of election to
the Board) options to purchase a total of 10,000 shares of common stock. These
options are exercisable in full beginning 12 months after the date of grant,
have a ten-year term, and are exercisable at fair market value on the date of
the grant.
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<PAGE> 45
Pursuant to this program, Mr. Fox, Dr. Videbeck, Lord St. John and Mr.
Paterson each received option grants for 40,000 shares of common stock at a
price of $1.57 per share on October 1, 1998. In addition, in March 1998, Mr.
Fox, Dr. Videbeck and Mr. Paterson each received options to purchase a total of
40,000 shares of common stock at a price of $1.63 per share, the fair market
value on the date of the grant, which became exercisable in September 1998. Mr.
Fox, Mr. Shiraishi, Dr. Videbeck and Mr. Paterson each received option grants
for 40,000 shares of common stock at a price of $11.69 per share on October 1,
1999. On December 3, 1999, Messrs. Furst and Levitt each received options to
purchase a total of 40,000 shares of common stock at a price of $10.03 per
share, the fair market value on that date.
Effective April 4, 2000, directors who are not also officers of or employed
by Globix or any of its majority-owned subsidiaries, will receive fees of $2,000
per meeting for board meetings attended in person, $1,250 per meeting for
committee meetings attended in person, $500 per meeting for board meetings
attended by conference call and $250 per meeting for committee meetings attended
by conference call.
In addition, at the discretion of the Board of Directors, directors may be
reimbursed for reasonable travel expenses in attending Board and committee
meetings.
STOCK OPTION COMMITTEE
Globix's Board of Directors has a Stock Option Committee that administers
the 1995 Stock Option Plan, 1998 Stock Option Plan and 1999 Stock Option Plan.
The Stock Option Committee currently consists of Messrs. Marc H. Bell, Fox and
Paterson.
AUDIT COMMITTEE
Globix's Board of Directors has an Audit Committee that monitors Globix's
corporate financial reporting and its internal and external audits, reviews and
approves material accounting policy changes, monitors internal accounting
controls, recommends engagement of independent auditors, reviews related-party
transactions and performs other duties as prescribed by the Board of Directors.
The Audit Committee currently consists of Messrs. Robert B. Bell and Paterson
and Dr. Videbeck.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation for
the years ended September 30, 1999, 1998 and 1997 for Globix's Chief Executive
Officer and its four most highly compensated executive officers (other than the
Chief Executive Officer) whose cash compensation exceeded $100,000 in the year
ended September 30, 1999 (collectively referred to as the named executive
officers):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- ----------------- ---- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Marc H. Bell......................... 1999 350,000 331,875 -- 4,788,244
Chairman, President and 1998 250,000 -- -- 846,000
Chief Executive Officer 1997 200,000 -- -- --
Robert B. Bell....................... 1999 240,625 -- -- --
Executive Vice President 1998 151,042 -- -- 120,000
1997 125,000 -- -- --
Marc Jaffe........................... 1999 215,685 -- -- 480,000
Senior Vice President, Chief 1998 133,250 -- -- 200,000
Operating Officer 1997 89,000 -- -- 100,000
Anthony Previte...................... 1999 141,585 -- -- 400,000
Senior Vice President, Chief 1998 -- -- -- --
Technology Officer 1997 -- -- -- --
</TABLE>
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<PAGE> 46
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- ----------------- ---- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Alan Levy............................ 1999 105,625 -- -- --
Treasurer and Chief Accounting 1998 84,580 -- -- 40,000
Officer 1997 -- -- -- 30,000
</TABLE>
Mr. Levy left our employ in November 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes options granted during the year ended
September 30, 1999 to the named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
% OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF STOCK
SECURITIES TO PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM($)
OPTIONS IN FISCAL EXERCISE EXPIRATION -----------------------
NAME GRANTED YEAR PRICE($) DATE 5% 10%
- ---- ---------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Marc H. Bell................ 691,664 8.8 1.57 10/01/08 1,760,387 2,803,122
4,096,580 52.3 9.25 3/26/09 61,724,299 98,285,630
Robert B. Bell.............. -- -- -- -- -- --
Marc Jaffe.................. 480,000 6.1 11.94 7/20/09 9,333,566 14,862,144
Anthony L. Previte.......... 24,000 0.3 2.25 11/19/08 87,960 140,062
16,000 0.2 3.85 1/08/09 100,184 159,526
360,000 4.6 11.94 7/20/09 7,000,175 11,146,609
Alan Levy................... -- -- -- -- -- --
</TABLE>
These options have been granted pursuant to Globix's 1999 Stock Option Plan
except for the option to purchase 4,096,580 shares, which was granted pursuant
to Marc H. Bell's employment agreement with Globix. The options granted to Marc
H. Bell are fully vested. All other options listed on this table vest over five
years at a rate of 20% on each anniversary of the date of the grant.
During the year ended September 30, 1999, Globix granted employees options
to purchase 7,842,576 shares of common stock under the 1995, 1998 and 1999 Stock
Option Plans.
The amounts shown as potential realizable value represent hypothetical
gains that could be achieved for the respective options if exercised at the end
of the option term. The 5% and 10% assumed annual rates of compounded stock
price appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent Globix's estimate or projection of Globix's
future common stock prices. These amounts represent certain assumed rates of
appreciation in the value of Globix's common stock from the fair market value on
the date of grant. Actual gains, if any, on stock option exercises are dependent
on the future performance of the common stock. The amounts reflected in the
table may not necessarily be achieved.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table shows the number of shares covered by both exercisable
and unexercisable stock options held by the named executive officers as of the
year ended September 30, 1999, and the values for exercisable and unexercisable
options. Options are in-the-money if the market value of the shares covered
thereby is greater than the option exercise price. This calculation is based on
the fair market value at September 30, 1999 of $11.69 per share, less the
exercise price. The only named executive officer who
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<PAGE> 47
exercised options during the fiscal year ended September 30, 1999 was Mr. Levy,
who exercised his option to purchase 4,000 shares at a purchase price of $1.53
per share and a realized value of $33,000.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS AT
UNEXERCISED OPTIONS AT SEPTEMBER 30, 1999
SEPTEMBER 30, 1999 ($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Marc H. Bell.............................. 5,411,844 222,400 23,254,452 2,201,760
Robert B. Bell............................ 480,000 -- 4,863,660 --
Marc Jaffe................................ 126,666 673,334 1,249,978 1,986,872
Anthony L. Previte........................ -- 400,000 -- 351,996
Alan Levy................................. 24,000 42,000 245,996 435,560
</TABLE>
EMPLOYMENT AGREEMENTS
Marc H. Bell. Globix and Marc H. Bell are parties to an employment
agreement, dated as of April 10, 1998, which expires on June 30, 2005. The
employment agreement provides for a base salary of $350,000 per year, increasing
annually at the rate of 5% per year. In addition, beginning on June 30, 1999,
Mr. Bell is entitled to receive an annual bonus equal to 10,000 times the
increase, if any, of the per share market price of Globix's common stock on each
June 30 over the highest per share market price of Globix's common stock on any
preceding July 1 during the term of the agreement. In accordance with this term
of the employment agreement, Mr. Bell received a bonus of $331,875 on September
30, 1999.
Pursuant to the terms of the employment agreement, Mr. Bell is entitled to
receive stock options from Globix. In March 1998, Mr. Bell received stock
options to purchase 278,000 shares of common stock at an exercise price of $1.79
per share which vest ratably over five years. Mr. Bell also received stock
options to purchase 568,000 shares of common stock at an exercise price of $1.63
per share, which fully vested six months after the date of grant.
Pursuant to the employment agreement, Mr. Bell was entitled to receive, on
September 30 of each fiscal year, an option to purchase shares of common stock
equal to 25% of any increase in the total shares of Globix common stock
outstanding during the prior twelve months as a result of equity offerings or
acquisitions. The exercise price of the option would be equal to the market
price of Globix's common stock on the date of grant and would be exercisable
immediately. At October 1, 1998, Mr. Bell was granted an option to purchase
691,664 shares at an exercise price of $1.57 per share under this provision of
the employment agreement. On March 2, 1999, Mr. Bell agreed to surrender this
right pursuant to an amendment to the employment agreement, which was
conditioned upon the consummation of Globix's public offering of 16,000,000
shares of common stock. Under the terms of the amendment, in lieu of this right,
Mr. Bell received a one-time option to purchase an amount of shares of Globix
common stock equal to 25% of the difference between the number of shares
outstanding immediately after the closing of the offering and the number
outstanding as of October 1, 1998. The public offering closed on March 26, 1999
and accordingly Mr. Bell received an option to purchase 4,096,580 shares at an
exercise price of $9.25 per share, the same as the price to the public in the
public offering. The term of the option is ten years from the date of the grant.
The amendment to the employment agreement was approved by Globix's stockholders
at the 1999 Annual Meeting of Stockholders held on April 23, 1999.
In September 1998, Mr. Bell borrowed $155,000 from Globix. The loan was due
in 2003 and accrued interest at the rate of 8.0% per annum. Pursuant to the
terms of Mr. Bell's previous employment agreement, he borrowed a total of
$145,408 from Globix during 1997. The loan was due in 2002 and accrued interest
at the rate of 8.75% per annum. In July 1999, Mr. Bell repaid both loans in
full.
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<PAGE> 48
Robert B. Bell. Globix and Robert B. Bell are parties to an employment
agreement, dated as of July 21, 1999, which expires on March 31, 2002. The
employment agreement provides for a base salary of $275,000 per year, increasing
annually at the rate of 5.0% per year starting October 1, 2000.
Pursuant to the terms of the employment agreement, Globix has established a
deferred compensation plan in the form of an irrevocable trust which Globix
funds to the extent of $250,000 for each fiscal quarter commencing with the
quarter ended March 31, 1999, until the total amount held in the trust reaches
$3.0 million. The employment agreement provides that if the agreement terminates
for any reason or there is a change of control, Globix shall, within five
business days thereafter, contribute to the trust the difference between the
amount held by the trust on the date of the termination or change of control and
$3.0 million, if any. Upon the termination of the employment agreement, Mr. Bell
will be entitled to receive payments of $20,000 per month from the trust,
subject to annual increases for cost of living adjustments. Upon Mr. Bell's
death, the payments from the trust shall be reduced by fifty percent and this
reduced amount shall be paid to Mr. Bell's designee for a period of two years.
Pursuant to the employment agreement, in the event of a change of control
during the term of the employment agreement, Mr. Bell shall have the right to
terminate the employment agreement at any time after the change of control. Upon
any termination of the employment agreement prior to May 31, 2002 but after a
change of control, Mr. Bell shall be entitled to receive a payment equal to 2.99
times his annual compensation, including bonuses, if any, during the one year
preceding the date of termination. In addition, upon a change of control, Mr.
Bell shall have the right, exercisable within six months after the change of
control, to require Globix to purchase all or a portion of his options to
acquire shares in Globix at a price equal to the greater of the then fair market
value of Globix's common stock or $12.50 per share less the exercise price under
such options.
Brian L. Reach. Globix and Brian L. Reach are parties to an employment
agreement, dated as of July 20, 1999, which expires August 31, 2000. The
employment agreement provides for a base salary of $250,000 per year and a
guaranteed first year bonus of $50,000. Pursuant to the terms of his employment
agreement, Mr. Reach received options to purchase 400,000 shares of common stock
at an exercise price of $11.94 per share, which vest ratably over five years.
STOCK OPTION PLANS
1995 Stock Option Plan. Globix has adopted the 1995 Stock Option Plan,
pursuant to which options to acquire an aggregate of 1,440,000 shares of common
stock have been reserved for issuance to employees, officers or directors of, or
consultants to, Globix. The Stock Option Committee has discretionary authority
to determine the types of stock options to be granted, the persons to whom
options may be granted, the number of shares to be subject to such options, the
exercise price of such option and the terms of the stock option agreements. The
exercise price will be determined by the Stock Option Committee and may be paid
in cash, certified or bank check, or in stock of Globix valued at its then fair
market value or by having Globix withhold, from the shares of common stock
otherwise issuable upon exercise of the option, that number of shares having an
aggregate fair market value equal to the aggregate exercise price. Options
generally become exercisable in three equal successive annual installments and
expire ten years after the grant date. In the event of an acquisition of Globix
(whether by merger or asset sale), the Board may provide that all outstanding
options will terminate if not exercised within 30 days of notice from Globix
provided that the acquisition is consummated within six months of such notice.
Options are non-transferable (including pursuant to a final divorce decree or
property division settlement or agreement) except by permission of the board of
directors, will or by the laws of descent and distribution. Globix has filed a
registration statement on Form S-8 with respect to the shares of common stock to
be issued upon the exercise of the options granted under the 1995 Stock Option
Plan.
1998 Stock Option Plan. Globix has adopted the 1998 Stock Option Plan,
pursuant to which options to acquire an aggregate of 4,800,000 shares of common
stock have been reserved for issuance to employees, officers or directors of, or
consultants to, Globix. The Stock Option Committee has discretionary authority
to determine the types of stock options to be granted, the persons to whom
options
44
<PAGE> 49
may be granted, the number of shares to be subject to such options, the exercise
price of such options and the terms of the stock option agreements. The exercise
price will be determined by the Stock Option Committee and may be paid in cash,
certified or bank check, or in stock of Globix valued at its then fair market
value or by having Globix withhold, from the shares of common stock otherwise
issuable upon exercise of the option, that number of shares having an aggregate
fair market value equal to the aggregate exercise price. Options generally
become exercisable in five equal successive annual installments and expire ten
years after the grant date. In the event of an acquisition of Globix (whether by
merger or asset sale), the Board may provide that all outstanding options will
terminate if not exercised within 30 days of notice from Globix provided that
the acquisition is consummated within six months of such notice. Options are
non-transferable (including pursuant to a final divorce decree or property
division settlement or agreement) except by permission of the Board of
Directors, will or by the laws of descent and distribution. The 1998 Stock
Option Plan was approved by Globix's stockholders at the 1998 Annual Meeting of
Stockholders held on April 16, 1998. Globix filed a registration statement on
Form S-8 with respect to the shares of common stock to be issued upon the
exercise of the options granted under the 1998 Stock Option Plan.
1999 Stock Option Plan. Globix has adopted the 1999 Stock Option Plan,
pursuant to which options to acquire an aggregate of 6,000,000 shares of common
stock have been reserved for issuance to employees, officers or directors of, or
consultants to, Globix. The Stock Option Committee has discretionary authority
to determine the types of stock options to be granted, the persons to whom
options may be granted, the number of shares to be subject to such options, the
exercise price of such options and the terms of the stock option agreements. The
exercise price will be determined by the Stock Option Committee and may be paid
in cash, certified or bank check, or in stock of Globix valued at its then fair
market value or by having Globix withhold, from the shares of common stock
otherwise issuable upon exercise of the option, that number of shares having an
aggregate fair market value equal to the aggregate exercise price. Options
generally become exercisable in five equal successive annual installments and
expire ten years after the grant date. In the event of an acquisition of Globix
(whether by merger or asset sale), the Board may provide that all outstanding
options will terminate if not exercised within 30 days of notice from Globix
provided that the acquisition is consummated within six months of such notice.
Options are non-transferable (including pursuant to a final divorce decree or
property division settlement or agreement) except by permission of the Board of
Directors, will or by the laws of descent and distribution. The 1999 Stock
Option Plan was approved by Globix's stockholders at the 1999 Annual Meeting of
Stockholders held on April 23, 1999. Globix filed a registration statement on
Form S-8 with respect to the shares of common stock to be issued upon the
exercise of the options granted under the 1999 Stock Option Plan.
Under the Stock Option Plans, each Board member (excluding any person who
directly or indirectly beneficially owns more than 5% of Globix's common stock)
will be granted an option to purchase shares of common stock on the date of the
Board member's election to the Board.
Options granted to Board members under the 1998 and 1999 Stock Option Plans
become exercisable twelve months after the date of grant.
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<PAGE> 50
CERTAIN TRANSACTIONS
Until recently, Mr. Marc H. Bell had two loans outstanding from Globix. In
September 1998, Mr. Bell borrowed $155,000 from Globix pursuant to an employment
agreement, dated April 10, 1998. This loan was to mature in 2003 and accrued
interest at the rate of 8.0% per annum. Under Mr. Bell's previous employment
agreement, Mr. Bell borrowed $145,408 from Globix. This loan was to mature in
2002 and accrued interest at the rate of 8.75% per annum. Mr. Bell repaid both
loans in July 1999. See "Management -- Employment Agreements" for a complete
discussion of employment arrangements we have with Marc H. Bell and Robert B.
Bell.
Globix retains Sid Paterson Advertising, Inc., an entity controlled by Mr.
Sid Paterson, a director of Globix, as its agent to place advertisements in
various print publications. Amounts paid to Sid Paterson Advertising, Inc. for
the year ended September 30, 1999 and 1998 were approximately $1.5 million and
for the year $0.5 million respectively. Amounts paid to this entity for the
three months ended December 31, 1999 were approximately $0.1 million. A
substantial portion of these amounts constitute the pass-through of amounts
payable by Globix to the publications for printing the advertisements. All
transactions between Globix and Sid Paterson Advertising Inc. are on terms that
are no less favorable to Globix than those available in comparable transactions
in arm's length dealings with unrelated third parties.
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<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Globix common stock as of February 18, 2000:
- each person or entity who is known by Globix to own beneficially 5% or
more of the outstanding shares of common stock;
- each executive officer in office as of February 18, 2000;
- each director; and
- all executive officers and directors of Globix as a group.
The applicable percentage of ownership is based on 34,522,404 shares outstanding
on February 18, 2000. Unless otherwise indicated, the address for those listed
below is c/o Globix Corporation, 139 Centre St., New York, NY 10013.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS, DIRECTORS NUMBER OF SHARES PERCENT
AND 5% STOCKHOLDERS: BENEFICIALLY OWNED OF CLASS
- ----------------------------- ------------------ --------
<S> <C> <C>
Marc H. Bell................................................ 7,031,216 17.6
Robert B. Bell.............................................. 204 *
Marc Jaffe.................................................. 96,404 *
Anthony L. Previte.......................................... 8,000 *
Brian L. Reach.............................................. -- --
Lord Anthony St. John....................................... 56,000 *
80-110 New Oxford St.
London WC1A 1HB
Martin Fox.................................................. 70,000 *
10 Henry Street
Teterboro, NJ 07608
Jack D. Furst............................................... -- --
200 Crescent Court
Dallas, Texas 75201
Michael J. Levitt........................................... -- --
200 Crescent Court
Dallas, Texas 75201
Sid Paterson................................................ 102,500 *
99 Madison Avenue
New York, NY 10016
Tsuyoshi Shiraishi.......................................... 850,000 2.5
Harpoon Holdings, Ltd.
2 Handy Road,
#11-09 Cathay Building,
Singapore 229233
Dr. Richard Videbeck........................................ 74,200 *
3249 East Angler's Stream
Avon Park, FL 33825
Thomas O. Hicks............................................. 8,000,000 18.9
200 Crescent Court
Dallas, Texas 75201
HM4 Globix Qualified Fund, LLC.............................. 5,448,300 13.6
200 Crescent Court
Dallas, Texas 75201
HMTF Equity Fund IV (1999), L.P............................. 5,448,300 13.6
200 Crescent Court
Dallas, Texas 75201
</TABLE>
47
<PAGE> 52
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS, DIRECTORS NUMBER OF SHARES PERCENT
AND 5% STOCKHOLDERS: BENEFICIALLY OWNED OF CLASS
- ----------------------------- ------------------ --------
<S> <C> <C>
HM4/GP (1999) Partners, L.P. ............................... 5,486,900 13.7
200 Crescent Court
Dallas, Texas 75201
Hicks, Muse GP (1999) Partners IV, L.P. .................... 5,709,900 14.2
200 Crescent Court
Dallas, Texas 75201
Hicks, Muse (1999) Fund IV, LLC............................. 5,709,900 14.2
200 Crescent Court
Dallas, Texas 75201
HMTF Bridge Globix, LLC..................................... 2,000,000 5.5
200 Crescent Court
Dallas, Texas 75201
HMTF Bridge Partners, L.P................................... 2,000,000 5.5
200 Crescent Court
Dallas, Texas 75201
HMTF Bridge Partners, LLC................................... 2,000,000 5.5
200 Crescent Court
Dallas, Texas 75201
Janus Capital Corporation, Janus Venture Fund and Thomas H.
Bailey.................................................... 4,395,040 12.7
100 Fillmore Street
Denver, CO 80206-4923
Nicholas-Applegate Capital Management....................... 2,171,600 6.3
600 West Broadway
San Diego, CA 92101
Putnam Investments, Inc. ................................... 2,871,200 8.3
One Post Office Square
Boston, MA 02109
The Putnam Advisory Company, Inc. .......................... 1,776,000 5.1
One Post Office Square
Boston, MA 02109
All executive officers and directors as a Group (12
persons).................................................. 7,439,524 18.5
</TABLE>
- ---------------
* Less than 1%
Under the rules of the Securities and Exchange Commission, a person is
deemed to be the beneficial owner of a security if that person has or shares the
power to vote or direct the voting of such security or the power to dispose or
direct the disposition of the security. A person is also deemed to be a
beneficial owner of any securities if that person has the right to acquire
beneficial ownership within 60 days.
The amount shown for Marc H. Bell includes 713,772 shares owned directly
and 5,467,444 stock options to purchase shares exercisable within 60 days. The
amount shown also includes 850,000 shares owned by Harpoon Holdings, Ltd., an
entity controlled by Mr. Shiraishi, a director of Globix. Harpoon's shares are
subject to an Irrevocable Proxy entered into between Harpoon and Marc H. Bell,
dated as of October 1, 1995, pursuant to which Mr. Bell has the sole right to
vote such shares with respect to the election of Globix's directors.
The amount shown for Mr. Jaffe includes 13,336 stock options to purchase
shares exercisable within 60 days.
The amount shown for Mr. Previte includes 8,000 stock options to purchase
shares exercisable within 60 days.
The amount shown for Lord St. John includes 56,000 stock options to
purchase shares exercisable within 60 days. Does not include 12,000 shares held
in trust for the benefit of Lord St. John's wife and children, to which Lord St.
John disclaims beneficial ownership.
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<PAGE> 53
The amount shown for Mr. Fox includes 40,000 stock options to purchase
shares exercisable within 60 days.
The amount shown for Mr. Paterson includes 80,000 stock options to purchase
shares exercisable within 60 days.
Mr. Shiraishi's shares are held through Harpoon.
The amount shown for Dr. Videbeck includes 74,200 stock options to purchase
shares exercisable within 60 days.
The amounts shown for Thomas O. Hicks, HM4 Globix Qualified Fund, LLC, HMTF
Equity Fund IV (1999), L.P., HM4/GP (1999) Partners, L.P., Hicks, Muse GP (1999)
Partners IV, L.P., Hicks, Muse (1999) Fund IV, LLC, HMTF Bridge Globix, LLC,
HMTF Bridge Partners, L.P. and HMTF Bridge Partners, LLC are based upon a
Schedule 13D filed on December 13, 1999 by Thomas O. Hicks, HM4 Globix Qualified
Fund, LLC, HMTF Equity Fund IV (1999), L.P., HM4 Globix Private Fund, LLC, HMTF
Private Equity Fund IV (1999), L.P., HM4/GP (1999) Partners, L.P., HM 4-EQ
Globix Coinvestors, LLC, HM 4-EQ (1999) Coinvestors, L.P., HM 4-SBS Globix
Coinvestors, LLC, HM 4-SBS (1999) Coinvestors, L.P., Hicks, Muse GP (1999)
Partners IV, L.P., Hicks, Muse (1999) Fund IV, LLC, HM PG-IV Globix, LLC, Hicks,
Muse PG-IV (1999), C.V., HM Equity Fund IV/GP Partners (1999), C.V., HM GP
Partners IV Cayman, L.P., HM Fund IV Cayman LLC, HMTF Bridge Globix, LLC, HMTF
Bridge Partners, L.P., and HMTF Bridge Partners, LLC. The amounts shown assume
conversion of all Series A 7.5% Convertible Preferred Stock beneficially owned
by such entities. The shares shown are subject to shared voting and investment
power.
Messrs. Furst and Levitt, each a director of Globix, were appointed to the
Board of Directors on behalf of the holders of the Series A 7.5% Convertible
Preferred Stock.
The amount shown for Janus Capital Corporation, Janus Venture Fund and
Thomas H. Bailey is based upon a Schedule 13G/A filed on February 17, 2000 by
Janus Capital Corporation, Thomas H. Bailey and Janus Venture Fund. The shares
shown are subject to shared voting and investment power.
The amount shown for Nicholas-Applegate Capital Management is based upon a
Schedule 13G filed on February 11, 2000.
The amounts shown for Putnam Investments, Inc. and The Putnam Advisory
Company, Inc. are based upon a Schedule 13G/A filed on February 17, 2000. The
shares shown are subject to shared voting and investment power. The amount shown
for Putnam Investments, Inc. include shares owned by The Putnam Advisory
Company, Inc. and Putnam Investment Management, Inc., each a wholly-owned
subsidiary of Putnam Investments, Inc., and Putnam Investments, Inc. disclaims
beneficial ownership of these shares.
The amount shown for all executive officers and directors as a group,
include 5,738,980 stock options to purchase shares exercisable within 60 days.
49
<PAGE> 54
DESCRIPTION OF OTHER INDEBTEDNESS
THE 13% SENIOR NOTES DUE 2005
In April 1998, Globix issued units consisting of $160,000,000 in aggregate
principal amount of 13% Senior Notes due 2005 and warrants to purchase 2,252,800
shares of common stock. The units were sold to ING Barings (U.S.) Securities,
Inc., as initial purchaser, who subsequently sold them to institutional
investors in reliance on exemptions under the Securities Act. The notes and
warrants were separated in August 1998. In September 1998, Globix completed a
public exchange offer pursuant to which all the 13% senior notes were exchanged
for substantially identical notes registered under the Securities Act that are
not subject to transfer restrictions. The warrants issued in the 13% senior note
offering remain subject to transfer restrictions. Interest on the 13% senior
notes is paid semi-annually on May 1 and November 1. In connection with the 13%
senior note offering, we purchased, pledged and placed in escrow U.S. government
securities in an amount sufficient to fund the first six interest payments on
the 13% senior notes (through the interest payment date on May 1, 2001).
On February 8, 2000, Globix commenced a tender offer to purchase for cash
any and all of its outstanding 13% senior notes due 2005, $160.0 million
principal amount. The purchase price in the tender offer was 106.5% of the
principal amount, plus accrued and unpaid interest. Concurrent with the offering
of the old notes, Globix received the consent of the beneficial holders of a
majority of the outstanding 13% senior notes to amend the indenture to eliminate
most of the covenants governing the 13% senior notes. A supplemental indenture
reflecting these amendments to the indenture was executed on February 4, 2000.
The tender offer closed in March 2000, and all $160.0 million in principal
amount of the 13% senior notes were tendered to Globix for purchase. Globix
purchased these 13% senior notes with approximately $170.4 million from the net
proceeds from the sale of the old notes.
50
<PAGE> 55
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
The old notes were sold by us on February 8, 2000 to Lehman Brothers Inc.,
Chase Securities Inc., Credit Suisse First Boston Corporation, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc. and ING Barings
LLC (the "Initial Purchasers") pursuant to a purchase agreement dated January
28, 2000 between us and the Initial Purchasers. As set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
and all old notes that are properly tendered on or prior to the expiration date
and not withdrawn as permitted below. The term "expiration date" means 5:00
p.m., New York City time on 2000; provided however, that if we
extend the period of time for which the exchange offer is open, the term
"expiration date" means the latest time and date to which the exchange offer is
extended.
As of the date of this prospectus, $600.0 million aggregate principal
amount of the old notes are outstanding. This prospectus, together with the
letter of transmittal, is first being sent on or about the date set forth on the
cover page to all holders of old notes at the addresses set forth in the
security register maintained by the trustee or other registrar. Our obligation
to accept old notes for exchange is subject to conditions as set forth under
"-- Conditions to the Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any old notes, by mailing written notice of an
extension to the holders of old notes as described below. During any extension,
all old notes previously tendered will remain subject to the exchange offer and
may be accepted for exchange by us. Any old notes not accepted for exchange for
any reason will be returned without expense to the tendering holder as promptly
as practicable after the expiration or termination of the exchange offer.
Old notes tendered in the exchange offer must be $1,000 in principal amount
or any integral multiple of $1,000.
We will mail written notice of any extension, amendment, non-acceptance or
termination to the holders of the old notes as promptly as practicable. This
notice will be mailed to the holders of record of the old notes no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date or other event giving rise to the notice requirement.
REGISTRATION COVENANT; EXCHANGE OFFER
Under our registration rights agreement with the Initial Purchasers, we
have agreed to file with the Commission the exchange offer registration
statement on the appropriate form under the Securities Act with respect to the
new notes. Upon the effectiveness of the exchange offer registration statement,
we will offer to the holders of the old notes who are able to make required
representations the opportunity to exchange their old notes for new notes.
Alternatively, we will file with the Commission a shelf registration statement
to cover resales of transfer restricted securities (as defined below) by the
holders of old notes who satisfy specific conditions relating to the provision
of information in connection with the shelf registration statement if:
- we are not permitted to consummate the exchange offer because it is not
permitted by applicable law or Commission policy; or
- any holder of old notes that is a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) notifies us at least 30
days prior to the consummation of the exchange offer that:
- it is prohibited by law or Commission policy from participating in the
exchange offer;
- it may not resell the old notes acquired by it in the exchange offer
to the public without delivering a prospectus and the prospectus
contained in the exchange offer registration statement is not
appropriate or available for such resales; or
51
<PAGE> 56
- it is a broker-dealer and holds old notes acquired directly from us or
one of our affiliates;
- the exchange offer is not for any other reason consummated by August 8,
2000; or
- the exchange offer has been completed and in the written opinion of
counsel for the Initial Purchasers a Registration Statement must be filed
and a prospectus must be delivered by the Initial Purchasers in
connection with any offering or sale of Transfer Restricted Securities.
We will use our best efforts to cause the applicable registration statement
to be declared effective as promptly as possible by the Commission.
"Transfer restricted securities" means each old note until the earliest of:
- the date on which the old note has been exchanged by a person other than
a broker-dealer for a new note in the exchange offer;
- following the exchange by a broker-dealer in the exchange offer of an old
note for a new note, the date on which the new note is sold to a
purchaser who received from the broker-dealer, on or prior to the date of
the sale, a copy of the prospectus contained in the exchange offer
registration statement;
- the date on which the old note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
- the date on which the old note is distributed to the public pursuant to
Rule 144 (k) (or any similar provision then in force) under the
Securities Act.
The registration rights agreement provides that:
- we will file an exchange offer registration statement with the Commission
as promptly as practicable, but in no event later than 60 days after
February 8, 2000, which is the closing date of the original issuance of
the old notes;
- we will use our best efforts to have the exchange offer registration
statement declared effective within 150 days after February 8, 2000;
- we will use our reasonable best efforts to cause the exchange offer to be
consummated on the earliest practicable date after the exchange offer
registration statement has become effective, but in no event later than
180 days after February 8, 2000;
- unless the exchange offer would not be permitted by applicable law or
Commission policy, we will commence the exchange offer and use our best
efforts to issue, on or prior to 30 business days after the date on which
the exchange offer registration statement was declared effective by the
Commission, new notes in exchange for all old notes tendered in the
exchange offer; and
- if obligated to file the shelf registration statement, we will use our
best efforts to file the shelf registration statement with the Commission
on or prior to 60 days after the filing obligations arises, and to cause
the shelf registration to be declared effective by the Commission on or
prior to 120 days after this obligation arises.
If a registration default (as defined below) occurs, then additional cash
interest ("Liquidated Damages") shall accrue to each holder of transfer
restricted securities, commencing upon the occurrence of such registration
default in an amount equal to .50% per annum of the principal amount of notes
held by such holder of transfer restricted securities. The amount of liquidated
damages will increase by an additional .50% per annum of the principal amount of
Notes with respect to each subsequent 90 day period (or portion thereof) until
all registration defaults have been cured, up to a maximum rate of liquidated
damages of 1.50% per annum of the principal amount of the old notes. All accrued
liquidated damages shall be paid to the holders of the old notes in the same
manner as interest is payable pursuant to the Indenture between us and HSBC Bank
USA, as trustee, dated February 8, 2000. Immediately upon the cure of all
registration defaults, accrual of liquidated damages will cease.
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<PAGE> 57
A "registration default" means the occurrence of one of the following
events:
- we fail to file any of the registration statements required by the
registration rights agreement on or before April 8, 2000;
- any of the registration statements is not declared effective by the
Commission on or prior to July 7, 2000;
- we fail to complete the exchange offer within 180 days after February 8,
2000. With respect to the exchange offer registration statement; or
- Any registration statement required by the registration rights agreement
is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being
succeeded within five business days by a post-effective amendment to such
registration statement that cures such failure and that is itself
declared effective within such five business day period.
This summary of the provisions of the registration rights agreement is not
complete and is subject to, and is qualified by reference to, all provisions of
the registration rights agreement. A copy of this agreement is filed as an
exhibit to our current report on Form 8-K, filed with the Commission on February
14, 2000.
INTEREST ON EXCHANGE NOTES
Each new note will bear interest from the most recent date to which
interest has been paid or duly provided for on the old note surrendered in
exchange for a new note, or, if no interest has been paid or duly provided for
on the old note, from February 8, 2000, the date of issuance of the old note.
Holders of the old notes whose old notes are accepted for exchange will not
receive accrued interest on the old notes for any period from and after the last
interest payment date to which interest has been paid or duly provided for on
the old notes prior to the original issue date of the new notes, or, if no
interest has been paid or duly provided for, will not receive any accrued
interest on the old notes. These holders will be deemed to have waived the right
to receive any interest on the old notes accrued from and after that interest
payment date, or, if no interest has been paid or fully provided for, from and
after February 8, 2000. Interest on the notes is payable semi-annually in
arrears on each February 1 and August 1, commencing on August 1, 2000.
PROCEDURES FOR TENDERING OLD NOTES
To tender in the exchange offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile of the letter of transmittal, have the
signatures guaranteed if required by the letter of transmittal, and mail or
otherwise deliver the letter of transmittal or a facsimile, together with the
old notes and any other required documents, to the exchange agent. The exchange
agent must receive these documents at the address set forth below prior to 5:00
p.m., New York City time on the expiration date. Delivery of the old notes may
be made by book-entry transfer in accordance with the procedures described
below. Confirmation of book-entry transfers must be received by the exchange
agent prior to the expiration date.
By executing a letter of transmittal, each holder will make to use the
representations set forth below under the heading "-- Resale of New Notes."
The tender by a holder and the acceptance by us will constitute an
agreement between the holder and us in accordance with the terms subject to the
conditions set forth in this prospectus and in the letter of transmittal.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holder. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the exchange agent before the expiration date. No
letter of transmittal or notes should
53
<PAGE> 58
be sent to us. Holders may request their brokers, dealers, commercial banks,
trust companies or nominees to effect the above transactions for them.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution (as defined below)
unless the old notes tendered:
- are signed by the registered holder, unless the holder has completed the
box entitled "special exchange instructions" or "special delivery
instructions" on the letter of transmittal; or
- are tendered for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "eligible institution").
If a letter of transmittal is signed by a person other than the registered
holder of any old notes listed on the letter of transmittal, the old notes must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder as the registered holder's name appears on the old notes, with
the signature guaranteed by an eligible institution.
If a letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or other acting in a fiduciary or representative capacity, the
persons should so indicate when signing. Unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
All questions as to the validity, form, eligibility, including time or
receipt, acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by us in our sole discretion. This determination will be
final and binding. We reserve the absolute right to reject any and all old notes
that are not properly tendered or any old notes our acceptance of which would,
in the opinion of our counsel, be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of tender as to particular old notes.
Our interpretation of the terms and conditions of the exchange offer, including
the instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within the time period we determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
old notes, none of Globix, the exchange agents or any other person will incur
any liability for failure to give this notification. Tenders of old notes will
not be deemed to have been made until defects or irregularities have been cured
or waived. Any old notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the exchange agent to the tendering holders, unless
otherwise provided in letter of transmittal, as soon as practicable following
the expiration date.
BOOK-ENTRY DELIVERY PROCEDURES
Promptly after the date of this prospectus, the exchange agent for the old
notes will establish accounts with respect to the old notes at DTC, (the
"book-entry transfer facility") for purposes of the exchange offer. Any
financial institution that is a participant in the book-entry transfer
facility's systems may make book-entry delivery of the old notes by causing the
book-entry transfer facility to transfer old notes into the exchange agent's
account at the book-entry transfer facility in accordance with the book-entry
transfer facility's procedures for transfers. Timely book-entry delivery of old
notes pursuant to the exchange offer, however, requires receipt of a book-entry
confirmation prior to the expiration date. In addition, to receive new notes for
tendered old notes, the letter of transmittal, or a mutually signed facsimile,
together with
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any required signature guarantees and any other required documents, or an
agent's message in connection with a book-entry transfer, must, in any case, be
delivered or transmitted to and received by the exchange agent at its address
set forth under "-- Exchange Agent" below prior to the expiration date.
Alternatively, the guaranteed delivery procedures described below must be
complied with. Tender will not be considered made until the documents are
received by the exchange agent. Delivery of documents to the book-entry transfer
facility does not constitute delivery to the exchange agent.
TENDER OF EXISTING NOTES HELD THROUGH BOOK-ENTRY TRANSFER FACILITY
The exchange agent and the book-entry transfer facility have confirmed that
the exchange offer is eligible for the book-entry transfer facility's Automated
Tender Offer Program, or ATOP. Accordingly, participants in the book-entry
transfer facility's ATOP may, in lieu of physically completing and signing the
letter of transmittal and delivering it to the exchange agent, electronically
transmit their acceptance of the exchange offer by causing the book-entry
transfer facility to transfer old notes to the exchange agent in accordance with
the book-entry transfer facility's ATOP procedures for transfer. The book-entry
transfer facility will then send an agent's message to the exchange agent.
The term "agent's message" means a message transmitted by a book-entry
transfer facility, received by exchange agent and forming party of the
book-entry confirmation, which states that:
- the book-entry transfer facility has received an expressed acknowledgment
from a participant in its ATOP that is tendering old notes which are the
subject of the book-entry conformation;
- the participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, the participant has received and agrees to be bound
by the notice of guaranteed delivery; and
- we may enforce the agreement against the participant.
GUARANTEED DELIVERY PROCEDURE
Holders who wish to tender their old notes and (1) whose old notes are not
immediately available, (2) who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent or (3) who
cannot complete the procedures for book-entry transfer, prior to the expiration
date, may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the agent receives from the eligible
institution a properly completed and duly executed notice of guaranteed
delivery by facsimile transmission, mail or hand delivery;
- setting forth the name and address of the holder;
- setting forth the certificate number(s) of the old notes and the
principal amount of old notes tendered, stating that the tender is being
made; and
- guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal or facsimile
together with the certificate(s) representing the old notes or a
book-entry confirmation of the old notes into the exchange agent's
account at the book-entry transfer facility and any other documents
required by the letter of transmittal, will be deposited by the eligible
institution with the exchange agent; and
- a properly completed and executed letter of transmittal for facsimile, as
well as the certificate(s) representing all tendered old notes in proper
form for transfer or a book-entry confirmation transfer of the old notes
into the exchange agent's account at the book-entry transfer facility and
all other documents required by the letter of transmittal, are received
by the exchange agent within three New York Stock Exchange trading days
after the expiration date.
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Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided in this prospectus, tenders of old notes may
be withdrawn at any time prior to 5:00 p.m., New York City time on the
expiration date.
To withdraw a tender of old notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at the address set forth below prior to 5:00 p.m., New York City time, on
the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn (the "depositor");
- identify the old notes to be withdrawn, including the certificates
number(s) and principal amount of the old notes, or, in the case of old
notes transferred by book-entry transfer, the name and number of the
account at the book-entry transfer facility to be credited;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to have the trustee or other registrar register
transfer of the old notes into the name of the person withdrawing the
tender; and
- specify the name in which any of the old notes are to be registered, if
different from that of the depositor.
All questions as to the validity, form and eligibility, including time or
receipt, of the notices will be determined by us. Our determination will be
final and binding on all parties. Any old notes so withdrawn will be deemed not
to have been validly tendered for purposes of the exchange offer and no new
notes will be issued in exchange unless the old notes so withdrawn are validly
retendered. Any old notes which have been tendered but which are not accepted
for exchange will be returned to their holder without cost to the holder as soon
as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn old notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering Old Notes"
at any time prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other terms of the exchange offer, we will not be
required to accept for exchange, or exchange new notes for, any old notes, and
may terminate the exchange offer before the acceptance of the old notes if, in
our sole judgment, the exchange offer would violate any law, statute, rule or
regulation or an interpretation thereof of the Staff of the Commission. If we
determine in our sole discretion that this condition is not satisfied, we may:
- refuse to accept any old notes and return all tendered old notes to the
tendering holders;
- extend the exchange offer and retain all old notes tendered prior to the
expiration date, subject, however, to the rights of holders to withdraw
the old notes (see "-- Withdrawals of Tender"); or
- waive the unsatisfied conditions with respect to the exchange offer and
accept all validly tendered old notes which have not been withdrawn. If
the waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that
will be distributed to the registered holders, and we will extend the
exchange offer for a period of five to ten business days, depending upon
the significance of the waiver and the manner of disclosure to the
registered holders, if the exchange offer would otherwise expire during
that five to ten business-day period.
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EXCHANGE AGENT
HSBC Bank USA has been appointed as the exchange agent for the exchange
offer of the old notes. The executed letter of transmittal should be directed to
the exchange agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent, addressed as follows:
By mail or by hand: HSBC Bank USA
140 Broadway -- Level A
New York, New York 10005-1180
Attention: Corporate Trust Department.
By Facsimile: (212) 658-2292
Confirm Facsimile by Telephone: (212) 658-5931
Delivery of a letter of transmittal to an address other than that for the
exchange agent as set forth above or transmission of instructions via facsimile
other than as set forth above does not constitute a valid delivery of a letter
of transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers or other soliciting
acceptances of the exchange offer.
TRANSFER TAXES
Holders who tender their old notes for exchange generally will not be
obligated to pay any transfer tax in connection with the exchange. However,
holders who instruct us to register new notes in the name of a person other than
the registered tendering holders, or request that old notes not tendered or not
accepted in the exchange offer be returned to a person other than the registered
tendering holder, will be responsible for the payment of any applicable transfer
tax.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes.
This is the aggregate principal amount of the old notes, as reflected in our
accounting records on the date of exchange. Accordingly, no gain or loss for
accounting purposes will be recognized in connection with the exchange offer.
The expenses of the exchange offer will be amortized over the term of the new
notes.
APPRAISAL RIGHTS
Holders of old notes will not have dissenters' rights or appraisal rights
in connection with the exchange offer.
RESALE OF NEW NOTES
The new notes are being offered to satisfy our obligations contained in the
registration rights agreement. We are making the exchange offer in reliance on
the position of the Staff of the Commission as set forth in the Exxon Capital
No-Action Letter, the Morgan Stanley No-Action Letter, the Shearman & Sterling
No-Action Letter, and other interpretive letters addressed to third parties in
other transactions. However, we have not sought our own interpretive letter
addressing these matters and there can be no assurance that the Staff would make
a similar determination with respect to the exchange offer as it has in those
interpretive letters to third parties. Based on these interpretations by the
Staff, and subject to the two immediately following sentences, we believe that
new notes issued pursuant to this exchange offer in exchange for old notes may
be offered for resale, resold and otherwise transferred by holders, other than a
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holder who is a broker-dealer, without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that:
- the new notes are acquired in the ordinary course of the holder's
business; and
- the holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution within the meaning of
the Securities Act of the new notes.
However, any holder who:
- is an "affiliate" of us, within the meaning of Rule 405 under the
Securities Act;
- does not acquire new notes in the ordinary course of its business;
- intends to participate in the exchange offer for the purpose of
distributing new notes; or
- is a broker-dealer who purchased old notes directly from us,
will not be able to rely on the interpretations of the Staff set forth in the
above-mentioned interpretive letters; will not be permitted or entitled to
tender old notes in the exchange offer; and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or other transfer of old notes unless the sale is made pursuant to an
exemption from those requirements.
In addition, as described below, if any broker-dealer holds old notes
acquired for its own account as a result of market-making or other trading
activities and exchanges the old notes for new notes (a "participating
broker-dealer"), the participating broker-dealer may be deemed to be a statutory
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of new notes. See "Plan of Distribution."
Each holder who wishes to exchange old notes for new notes in the exchange
offer will be required to represent that:
- it is not an affiliate of us;
- any new notes to be received by it are being acquired in the ordinary
course of its business; and
- it has no arrangement or understanding with any person to participate in
a distribution, within the meaning of the Securities Act, of new notes.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must:
- acknowledge that it acquired the old notes for its own account as a
result of market-making activities or other trading activities, and not
directly from us, and
- must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of new notes.
The letter of transmittal states that by so acknowledging and by delivering
a prospectus, a participating broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the Staff in the interpretive letters referred to above, we
believe that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the new notes received upon exchange of old notes
with a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of new notes.
Accordingly, this prospectus, as it may be amended or supplemented from time to
time, may be used by a participating broker-dealer during the period referred to
below in connection with the resales of new notes received in exchange for old
notes where the old notes were acquired by the participating broker-dealer for
its own account as a result of market-making or other trading activities.
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Subject to provisions set forth in the registration rights agreement, we
shall use our best efforts to:
- keep the exchange offer registration statement continuously effective,
supplemented and amended to the extent necessary to ensure that it is
available for sales of new notes by participating broker-dealers; and
- ensure that the exchange offer registration statement conforms with the
requirements of the Securities Act and the policies, rules and
regulations of the Commission as announced from time to time, for a
period ending upon the earlier of 180 days after the exchange offer has
been completed or at the time the participating broker-dealers no longer
own any transfer restricted securities. See "Plan of Distribution."
Any participating broker-dealer who is an affiliate of us may not rely on
the interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each participating broker-dealer who surrenders old notes pursuant to the
exchange offer will be deemed to have agreed, by execution of a letter of
transmittal, that, upon receipt of notice from us of the occurrence of any event
or the discovery of any fact which makes any statement contained or incorporated
by reference in this prospectus untrue in any material respect or which causes
this prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading or of the occurrence of
other events specified in the registration rights agreement, the participating
broker-dealer will suspend the sale of new notes pursuant to this prospectus
until we have amended or supplemented this prospectus to correct the
misstatement or omission and have furnished copies of the amended or
supplemented prospectus to the participating broker-dealer or we have given
notice that the sale of the new notes may be resumed, as the case may be.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Any old notes tendered and exchanged in the exchange offer will reduce the
aggregate principal amount of old notes outstanding. Following the consummation
of the exchange offer, holders who did not tender their old notes generally will
not have any further registration rights under the registration rights
agreement, and these old notes will continue to be subject to restrictions on
transfer. Accordingly, the liquidity of the market for the old notes could be
adversely affected. The old notes are currently eligible for sale under Rule
144A through the Portal Market. Because we anticipate that most holders will
elect to exchange their old notes for new notes due to the absence of most
restrictions on the resale of new notes, anticipate that the liquidity of the
market for any old notes remaining outstanding after the exchange offer may be
substantially limited.
As a result of the making of the exchange offer, we will have fulfilled our
obligations under the registration rights agreement, and holders who do not
tender their old notes generally will not have any further registration rights
or rights to receive liquidated damages specified in the registration rights
agreement for our failure to register the new notes.
The old notes that are not exchanged for new notes will remain restricted
securities. Accordingly, the old notes may be resold only:
- to Globix or one of its subsidiaries;
- to a qualified institutional buyer;
- to an institutional accredited investor;
- to a party outside the United States under Regulation S under the
Securities Act;
- under an exemption from registration provided by Rule 144 under the
Securities Act; or
- under an effective registration statement.
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DESCRIPTION OF THE NOTES
GENERAL
The old notes were and the new notes will be issued under an indenture
dated February 8, 2000 between us and HSBC Bank USA, as trustee. The term
"notes" refers to the old notes and the new notes. The statements under this
caption relating to the notes and the indenture are summaries and are not
complete. In addition, they are subject to, and are qualified in their entirety
by reference to, all the provisions of the indenture, including the definitions
of various terms in the indenture. The indenture is by its terms subject to and
governed by the Trust Indenture Act of 1939. Where reference is made to
particular provisions of the indenture or to defined terms not defined in this
prospectus, the provisions or defined terms are incorporated by reference to
this prospectus. Copies of the indenture and the registration rights agreement
referred to below are available for review at the corporate office of the
trustee and may also be obtained from us upon request.
The notes:
- are our senior unsecured obligations;
- rank equally in right of payment with all of our existing and future
senior unsecured debt; and
- are senior in right of payment to all of our existing and future
subordinated debt, if any.
The notes are subordinated to:
- our secured indebtedness to the extent of the value of the assets
securing the indebtedness; and
- all debt and other liabilities, including trade payables and lease
obligations, of our subsidiaries. Any right that we have to receive
assets of any of our subsidiaries upon their liquidation or
reorganization, and the consequent right of the holders of the notes to
participate in those assets, will be effectively subordinated to the
claims of that subsidiary's creditors, including trade creditors, except
to the extent that we are recognized as a creditor of the subsidiary, in
which case our claims would still be subordinate to any security in the
assets of the subsidiary and any debt of the subsidiary senior to that
held by us. See "Risk Factors -- Your right to receive payments on these
notes may be junior to all of our future borrowings."
As of December 31, 1999, we had approximately $4.4 million of indebtedness
to which holders of notes would have been effectively subordinated and $30.4
million of restricted cash pledged as security for the benefit of the holders of
our 13% senior notes. In addition, as of December 31, 1999, the aggregate amount
of liabilities of our subsidiaries was approximately $1.9 million. Due to our
purchase of all of the outstanding 13% senior notes pursuant to the tender offer
and thereafter, the $30.4 million of restricted cash has been released to Globix
from escrow. On January 25, 2000, we incurred $21.0 million of indebtedness,
which is secured by a first mortgage on the building located at 139 Centre
Street, New York.
The indenture contains limitations on our ability and the ability of our
restricted subsidiaries to incur additional indebtedness. However, these
limitations are subject to a number of exceptions, and we and our subsidiaries
may incur significant additional indebtedness in the future, including
indebtedness to which the holders of the notes would be effectively
subordinated.
Under various circumstances, we will be able to designate current or future
subsidiaries as Unrestricted Subsidiaries, which will not be subject to many of
the restrictive covenants discussed in the indenture.
The notes are not entitled to any security and are not entitled to the
benefit of any guarantees except under the circumstances described under
"-- Covenants -- Limitation on Guarantees of Issuer Debt by Restricted
Subsidiaries."
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PRINCIPAL, INTEREST AND MATURITY
The notes will mature on February 1, 2010. The notes will be limited to
$600.0 million. Each note bears interest at 12 1/2% per annum from the later to
occur of February 8, 2000 or the most recent interest payment date to which
interest has been paid, payable semiannually on February 1 and August 1 of each
year, commencing August 1, 2000, to the Person in whose name the note, or any
predecessor note, is registered at the close of business on the January 15 and
July 15 immediately preceding the interest payment date. Interest is computed on
the basis of a 360-day year comprising twelve 30-day months.
We have agreed to file and cause to become effective this registration
statement relating to this exchange offer for the old notes, or, in lieu
thereof, to file and cause to become effective a resale shelf registration for
the old notes. If the exchange offer or shelf registration statement is not
filed or is not declared effective, or if the exchange offer is not consummated,
within the time periods set forth in the registration rights agreement,
liquidated damages will accrue and be payable on the old notes. See
"Registration Covenant Exchange Offer" above.
Principal of, premium, if any, and interest on the notes will be payable by
wire transfer of immediately available funds to the holders of the global notes
and with respect to the certificated notes at the office or agency of Globix,
which will initially be the corporate trust office of the trustee maintained in
the City of New York for such purposes. We may, at our option, pay interest on
the notes by check mailed to the address of the Person entitled thereto as it
appears in the Note Register.
A holder of old notes will not pay a service charge for any registration of
transfer or exchange of notes. We may, however, require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The old notes were offered and sold to qualified institutional buyers
("Qualified Institutional Buyers") in reliance on Rule 144A and, to certain
non-U.S. holders, in reliance on Regulation S under the Securities Act. The
notes are represented by one or more permanent global notes in registered,
global form without interest coupons (collectively, the "Rule 144A Global
Note"). The Rule 144A Global Note was initially deposited upon issuance with the
trustee as custodian for the Depository Trust Company (the "Depository") in New
York, New York, and registered in the name of the Depository or its nominee, in
each case for credit to an account of a direct or indirect participant as
described below.
The notes sold in offshore transactions in reliance on Regulation S under
the Securities Act are represented by one or more permanent global notes in
registered, global form without interest coupons (collectively, the "Regulation
S Global Note", the Regulation S Global Note and the Rule 144A Global Note,
collectively being called the "Global Notes"). The Regulation S Global Note is
registered in the name of the Depository or its nominee for credit to the
subscribers' respective accounts at the Euroclear System and Cedel Bank. Prior
to the 40th day after the closing date for the notes (such period through and
including such 40th day being the "Restricted Period"), beneficial interest in
the Regulation S Global Note could be held only through Euroclear or CEDEL.
Beneficial interests in the Rule 144A Global Note may not be exchanged for
beneficial interests in the Regulation S Global Note at any time except in the
limited circumstances described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to the Depository, a nominee of the Depository or to a
successor of the Depository or its nominee. Beneficial interests in the Global
Notes may not be exchanged for notes in certificated form except in the limited
circumstances described below.
The Global Notes (including beneficial interests therein) are subject to
certain restrictions on transfer and bear a restrictive legend as described
under "Notice to Investors." In addition, transfer of beneficial interests in
the Global Notes are subject to the applicable rules and procedures of the
Depository and its direct or indirect participants (including, if applicable,
those of Euroclear and CEDEL), which may change from time to time.
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Upon the transfer of certificated notes in physical form, if any, to a
Qualified Institutional Buyer or in accordance with Regulation S, such
certificated notes will, unless the relevant Global Note has previously been
exchanged in whole for certificated notes, be exchanged for an interest in a
Global Note. See "Notice to Investors."
The notes may be presented for registration of transfer and exchange at the
offices of the registrar. The trustee will act as registrar.
DEPOSITORY PROCEDURES
The Depository has advised us that it is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the initial purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
"Indirect Participants"). Persons who are not Participants may own beneficially
securities held by or on behalf of the Depository only through Participants or
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of the Depository
are recorded on the records of the Participants and Indirect Participants.
The Depository also has advised us that pursuant to procedures established
by it, (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants designated by the initial purchasers with portions of
the principal amount of Global Notes and (ii) ownership of such interests in the
Global Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depository (with respect to
Participants) or by Participants and the Indirect Participants (with respect to
other owners of beneficial interest in the Global Notes).
Investors in the Rule 144A Global Note may hold their interests therein
directly through the Depository, if they are Participants in such system, or
indirectly through organizations (including Euroclear and CEDEL) that are
participants in such system. Investors in the Regulation S Global Note initially
must hold their interests therein through Euroclear or CEDEL, if they are
participants in such systems, or indirectly through organizations that are
participants in such systems. After the expiration of the Restricted Period (but
not earlier), investors also may hold interests in the Regulation S Global Note
through organizations other than Euroclear and CEDEL that are Participants in
the Depository system. Euroclear and CEDEL will hold interests in the Regulation
S Global Note on behalf of their participants through customers' securities
accounts in their respective names on the books of their respective depositories
which are Morgan Guaranty Trust Company of New York, Brussels office, as
operator of Euroclear, and Citibank, N.A. as operator of CEDEL. The
depositories, in turn, will hold such interests in the Regulation S Global Note
in customers' securities accounts in the depositories' names on the books of the
Depository. All interests in a Global Note including those held through
Euroclear or CEDEL, may be subject to the procedures and requirements of the
Depository. Those interests held by Euroclear or CEDEL also may be subject to
the procedures and requirements of such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in a Global Note to such persons may be limited to
that extent. Because the Depository can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having a beneficial interest in a Global Note to pledge such
interest to persons or entities that do not participate in the Depository
system, or otherwise take actions in respect of such interests may be affected
by the lack of physical certificate evidencing such interests.
Except as described below, owners of interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
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Payments in respect of the principal and premium and liquidated damages, if
any, and interest in a Global Note registered in the name of the Depository or
its nominee will be payable by the paying agent to the Depository or its nominee
in its capacity as the registered holder of a Global Note under the indenture.
Under the terms of the indenture, we and the trustee will treat the persons in
whose names the notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither we, the trustee nor any agent of us
or the trustee have or will have any responsibility or liability for (i) any
aspect of the Depository's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes, or for maintaining, supervising or
reviewing any of the Depository's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes or (ii) any other matter relating to the actions and practices of
the Depository or any of its Participants or Indirect Participants.
The Depository has advised us that its current practices, upon receipt of
any payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Notes as shown on the records of the Depository. Payments by
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will not
be the responsibility of the Depository, the trustee or us. Neither we nor the
trustee will be liable for any delay by the Depository or its Participants in
identifying the beneficial owners of the notes, and we and the trustee may rely
conclusively on and will be protected in relying on instructions from the
Depository or its nominee as the registered owner of the notes for all purposes.
Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Notes will trade in the Depository's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of the Depository and its Participants. Transfers between
Participants in the Depository will be effective in accordance with the
Depository's procedures, and will be settled in same-day funds. Transfer between
participants in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, transfers between Participants in the Depository and Euroclear or CEDEL
participants will be effected through the Depository in accordance with the
Depository's rules. Such transfers will require delivery of instructions to
Euroclear or CEDEL, as applicable, in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear
or CEDEL will, if the transaction meets its settlement requirements, deliver
instructions to its respective depository to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in the
Depository, and making or receiving payment in accordance with normal procedures
for same-day fund settlement applicable to the Depository. Euroclear
participants and CEDEL participants may not deliver instructions directly to the
depositories for Euroclear or CEDEL.
Due to time zone differences, the securities accounts of a Euroclear or
CEDEL participant purchasing an interest in a Global Note from a Participant in
the Depository will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL) immediately
following the settlement date of the Depository. Cash received in Euroclear or
CEDEL as a result of sales of interests in a Global Note by or through a
Euroclear or CEDEL participant to a Participant in the Depository will be
received with value on the settlement date of the Depository but will be
available in the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following the Depository's settlement date.
The Depository has advised us that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Participants to
whose account the depository interests in the Global
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Notes are credited and only in respect of such portion of the aggregate
principal amount of the notes as to which such Participant or Participants has
or have given direction. However, if there is an Event of Default under the
notes, the Depository reserves the right to exchange Global Notes for legended
notes in certificated form, and to distribute such notes to its Participants.
The information in this section concerning the Depository, Euroclear and
CEDEL and their book-entry systems has been obtained from sources that we
believe to be reliable, but we take no responsibility for the accuracy thereof.
Although the Depository, Euroclear and CEDEL have agreed to the foregoing
procedures to facilitate transfers of interests in the Regulation S Global Note
and in the Rule 144A Global Note among Participants in the Depository, Euroclear
and CEDEL, they are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. We, the initial
purchasers of the notes and the trustee will not have any responsibility for the
performance by the Depository, Euroclear or CEDEL or their respective
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes.
A Global Note is exchangeable for definitive notes in registered
certificated form if:
(i) the Depository
(a) notifies us that it is unwilling or unable to continue as
depository for the Global Note and we thereupon fail to appoint a
successor depository or
(b) has ceased to be a clearing agency registered under the
Securities Exchange Act of 1934,
(ii) upon the continuance of an Event of Default, or
(iii) we, at our option, notify the trustee in writing that we elect
to cause issuance of the notes in certificated form.
In addition, beneficial interests in a Global Note may be exchanged for
certificated notes upon request but only upon at least 20 days' prior written
notice given to the trustee by or on behalf of the Depository in accordance with
customary procedures. In all cases, certificated notes delivered in exchange for
any Global Note or beneficial interest therein will be registered in names, and
issued in any approved denominations, requested by or on behalf of the
Depository (in accordance with its customary procedures) and will bear, the
restrictive legend referred to in "Notice to Investors," unless we determine
otherwise in compliance with applicable law.
Exchanges Between Regulation S Notes and the Rule 144A Global Note.
Prior to the expiration of the Restricted Period, a beneficial interest in
a Regulation S Global Note could not be transferred to a U.S. Person.
Thereafter, such transfers are permitted on the terms specified in the
indenture.
Beneficial interests in Rule 144A Global Notes may be transferred to a
person who takes delivery in the form of an interest in the Regulation S Global
Note, whether before or after the expiration of the Restricted Period, only if
the transferor first delivers to the trustee a written certificate to the effect
that such transfer is being made in accordance with Rule 903 or 904 of
Regulation S and that, if such transfer occurs prior to the expiration of the
Restricted Period, the interest transferred will be held immediately thereafter
through the Euroclear System and CEDEL.
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in another Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in such other Global Note, and accordingly, will thereafter be subject
to all
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transfer restrictions and other procedures applicable to beneficial interests in
such other Global Note for as long as it remains such an interest.
Transfers involving an exchange of a beneficial interest in the Regulation
S Global Note for a beneficial interest in the Rule 144A Global Note or vice
versa will be effected by the Depository by means of an instruction originated
by the trustee through the Depository/Deposit Withdraw at Custodian system.
Accordingly, in connection with such transfer, appropriate adjustments will be
made to reflect a decrease in the principal amount of the Regulation S Global
Note and a corresponding increase in the principal amount of the Rule 144A
Global Note or vice versa, as applicable.
According to the Depository, the foregoing information with respect to the
Depository has been provided to the financial community for informational
purposes only and is not intended to serve as a representation, warranty, or
contract modification of any kind.
Same Day Settlement and Payment.
The indenture requires that payments in respect of the notes represented by
the Global Note (including principal, premium, if any, interest and liquidated
damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note holder. With respect to certificated
notes, we will make all payments of principal, premium, if any, interest and
liquidated damages, if any, at the office or agency of Globix, which will
initially be the corporate trust of the trustee maintained in the City of New
York for such purposes or, at our option by mailing a check to each such
holder's registered address. We expect that secondary trading in the
certificated notes will also be settled in immediately available funds.
OPTIONAL REDEMPTION
Except as described below, the notes will not be redeemable at our option
prior to February 1, 2005.
The notes are subject to redemption, at our option, in whole or in part, at
any time on or after February 1, 2005 and prior to maturity, upon not less than
30 nor more than 60 days' notice. The notice must be mailed to each holder of
notes to be redeemed at each holder's address appearing in the Note Register.
The notes are redeemable in amounts of $1,000 or an integral multiple of $1,000.
Redemption would be made at the following prices, expressed as percentages of
the principal amount if redeemed during the 12-month period beginning February 1
of the years indicated below. Holders will also receive accrued and unpaid
interest and liquidated damages, if any, to but excluding the redemption date,
subject to the right of holders of record on the immediately preceding record
date to receive interest due on an interest payment date that is on or prior to
the redemption date.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2005.................................................... 106.250%
2006.................................................... 104.167%
2007.................................................... 102.083%
2008 and thereafter..................................... 100.000%
</TABLE>
In addition, at any time prior to February 1, 2003, we may redeem up to 35%
of the aggregate outstanding principal amount of the notes with the Net Cash
Proceeds of one or more sales of Capital Stock, other than Disqualified Stock,
at a redemption price equal to 112.500% of the aggregate principal amount of the
notes, plus accrued and unpaid interest thereon and liquidated damages, if any,
to the date of redemption. However, at least 65% of the original principal
amount of the notes must remain outstanding immediately following the
redemption. In order to effect the foregoing redemption, we must mail a notice
of redemption no later than 45 days after the related sale of Capital Stock and
must consummate the redemption within 60 days of the closing of the sale of
Capital Stock.
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If less than all the notes are to be redeemed, selection of notes for
redemption will be made by the trustee, in compliance with the requirements of
the principal national securities exchange, if any, on which the notes are
listed, or, if the notes are not so listed, on a pro rata basis, by lot or in a
manner as it shall deem fair and appropriate. However, after the redemption in
part, all notes must be in amounts of $1,000 or integral multiples of $1,000.
Notices of redemption may not be conditional. If any note is to be redeemed in
part only, the notice of redemption that relates to the note must state the
portion of the principal amount of the note to be redeemed. A note in principal
amount equal to the unredeemed portion will be issued in the name of the holder
upon cancellation of the redeemed note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption and, unless
we default in the payment of the redemption price, notes or portions of them
called for redemption will no longer be deemed outstanding.
SINKING FUND
The notes are not entitled to the benefit of any sinking fund.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs at any time, then each holder of notes has
the right to require that we purchase the holder's notes for cash at a purchase
price equal to 101% of the principal amount of the notes, plus accrued and
unpaid interest and liquidated damages, if any, to the date of purchase. The
holders may require that we purchase their notes in whole or in part in integral
multiples of $1,000. Any purchase would be made pursuant to the Offer to
Purchase and in accordance with the other procedures set forth in the indenture.
Within 30 days following the Change of Control, we will mail an Offer to
Purchase to each holder describing the transaction or transactions that
constitute the Change of Control and offering to purchase notes on the date
specified. We will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations to the extent these laws and
regulations are applicable in connection with the purchase of the notes under
the Offer to Purchase.
In the event a Change of Control occurs at a time when we are prohibited
from purchasing the notes, due to provisions of other debt agreements or
otherwise, we could seek the consent of our lenders to the purchase of notes or
could attempt to refinance the borrowings that contain this prohibition. If we
do not obtain a consent or repay borrowings, we will remain prohibited from
purchasing notes. In this case, our failure to purchase tendered notes would
constitute an Event of Default under the indenture, which could, in turn,
constitute a default under the terms of other debt agreements. See "Risk
Factors -- We may not be able to purchase your notes upon a change of control."
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that we repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.
We will not be required to make an Offer to Purchase upon a Change of
Control if a third party:
- makes the Offer to Purchase in the manner, at the times and otherwise in
compliance with the requirements set forth in the indenture applicable to
the Offer to Purchase; and
- purchases all notes validly tendered and not withdrawn under the Offer to
Purchase.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of our assets and the assets of our Subsidiaries taken as a whole. There is no
precise established definition of the phrase "substantially all" under
applicable law. Accordingly, the ability of a holder of notes to require us to
repurchase the notes as a result of a sale,
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lease, transfer, conveyance or other disposition to another Person or group of
less than all of our assets and the assets of our Subsidiaries taken as a whole
may be uncertain.
COVENANTS
The indenture contains the following covenants:
Limitation on Debt
We will not, and we will not permit any of our Restricted Subsidiaries to,
Incur any Debt; provided that Globix may Incur Debt and Globix's Restricted
Subsidiaries may Incur Eligible Debt if, after giving effect to the Incurrence
of Debt and the receipt and application of the proceeds thereof, the
Consolidated Debt to EBITDA Ratio would be greater than zero and less than 6:1.
However, the following Debt may be Incurred:
(1) Permitted Senior Bank Debt;
(2) Debt owed:
- by a Restricted Subsidiary to us, which is evidenced by a promissory
note; or
- to any Restricted Subsidiary, which is evidenced by a promissory note;
provided that (i) if Globix is the obligor, such Debt is expressly
subordinated to the prior payment in full in cash of all obligations with
respect to the notes and (ii) in each case, any event which results in any
Restricted Subsidiary ceasing to be a Restricted Subsidiary, or any
subsequent transfer of Debt other than to us or another Restricted
Subsidiary, is deemed, in each case, to constitute the Incurrence of Debt
not permitted by this clause (2);
(3) Debt:
- in respect of performance, surety or appeal bonds or letters of credit
in the ordinary course of business;
- under Permitted Interest Rate or Currency Protection Agreements; or
- arising under, or arising from, agreements providing for
indemnification, adjustment of purchase price or similar obligations,
or from Guarantees or letters of credit, surety bonds or performance
bonds securing any of our obligations Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary other
than Guarantees of Debt Incurred by any Person acquiring all or any
portion of the business, assets or Restricted Subsidiary for the
purpose of financing an acquisition, in a principal amount not to
exceed the gross proceeds actually received by us or any Restricted
Subsidiary in connection with the disposition;
(4) Debt which is exchanged for or the proceeds of which are used to
replace, refinance or refund, or any extension or renewal (including as a
result of an amendment or restatement) of (each a "refinancing"):
- the notes and the new notes issued in the exchange offer issued under
the indenture;
- Debt incurred pursuant to clauses (3), (5), (8) and (9) of this
paragraph and this clause (4),
- in each case in an aggregate principal amount not to exceed the
principal amount of the Debt so refinanced, together with any
accrued interest and any premium and other payment required to be
made with respect to the Debt being refinanced or refunded, and any
fees, costs, expenses, underwriting discounts or commissions and
other payments paid
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or payable with respect to the Debt incurred pursuant to this
clause (4); provided, however, that:
- Debt, the proceeds of which are used to replace, refinance or
refund the notes, or Debt which is pari passu with or subordinate
in right of payment to the notes, shall only be permitted if (x) in
the case of any refinancing of the notes or Debt which is pari
passu to the notes, the refinancing Debt is Incurred by us and made
pari passu to the notes or subordinated to the notes, and (y) in
the case of any refinancing of Debt which is subordinated to the
notes, the refinancing Debt is Incurred by us and is subordinated
to the notes in a manner that is at least as favorable to the
holders as that of the Debt refinanced;
- the replacement, refinancing or refunding Debt by its terms, or by
the terms of any agreement or instrument pursuant to which Debt is
issued, does not have a final maturity prior to the final maturity
of the notes and has an Average Life longer than the Average Life
of the notes; and
- in the case of any refinancing of Debt Incurred by us, the
refinancing of Debt may be Incurred only by us, and in the case of
any refinancing of Debt Incurred by a Restricted Subsidiary, the
refinancing of Debt may be Incurred only by a Restricted Subsidiary
or by us;
(5) Acquisition Debt;
(6) Debt of Globix or Eligible Debt of Restricted Subsidiaries not to
exceed, at any time outstanding, 2.0 times the Net Cash Proceeds received
by us after the original issue date of the notes (x) from the issuance and
sale of our Capital Stock, other than Disqualified Stock, or (y) from the
issuance and sale of convertible Debt upon the conversion of that Debt into
Capital Stock, other than Disqualified Stock, in each case to a Person that
is not our Subsidiary, to the extent that Net Cash Proceeds have not been
used pursuant to the third clause of the Restricted Payment Basket
calculation in the first paragraph or clauses (3), (4) or (6) of the second
paragraph of the "Limitation on Restricted Payments" covenant described
below to make a Restricted Payment; provided that any Debt of Globix does
not have a final maturity prior to the final maturity of the notes and has
an Average Life longer than the Average Life of the notes;
(7) Debt of Globix or Eligible Debt of Restricted Subsidiaries not to
exceed, at any time outstanding, 1.0 times the fair market value at the
time of issuance (as determined in good faith by the board of directors of
Globix and evidenced by a resolution of such board of directors filed with
the trustee) of our Capital Stock, other than Disqualified Stock, issued in
exchange for long term assets purchased for use in the Internet Service
Business or the Capital Stock of a Person primarily engaged in the Internet
Service Business which as a result of such purchase becomes a Restricted
Subsidiary, in each case, acquired by us after the original issue date of
the notes, to the extent that such fair market value of our Capital Stock
has not been used pursuant to the fourth clause of the Restricted Payment
Basket calculation in the first paragraph of the "Limitation on Restricted
Payments" covenant described below to make a Restricted Payment; provided,
that with respect to the acquisition of a Person, the fair market value of
the Capital Stock shall be reduced by the amount of goodwill recorded in
connection with such acquisition, and, provided, further, that the Debt of
Globix Incurred pursuant to this clause (7) does not have a final maturity
prior to the final maturity of the notes and has an Average Life longer
than the Average Life of the notes;
(8) Existing Debt;
(9) Debt, including, but not limited to, Capital Lease Obligations and
Purchase Money Secured Debt, Incurred to finance the purchase or other
acquisition of any property, inventory, asset or business directly or
indirectly, by us or any Restricted Subsidiary used in, or to be used in,
the Internet Service Business;
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(10) Subordinated Debt not to exceed $100.0 million in principal
amount outstanding at any time; and
(11) our other Debt or other debt of any Restricted Subsidiary not to
exceed $75.0 million in principal amount outstanding at any one time.
For purposes of determining compliance with this covenant, in the event
that an item of Debt meets the criteria of more than one of the types of Debt
described in the above clauses, or is permitted in part under the first
paragraph of this covenant and in part under one or more of the above clauses,
we, in our sole discretion, shall classify, and from time to time may
reclassify, the item of Debt in whole or in part.
For purposes of determining any particular amount of Debt under this
covenant, Guarantees, Liens or obligations with respect to letters of credit
supporting Debt otherwise included in the determination of the particular amount
will not be included.
Limitation on Guarantees of Our Debt by Restricted Subsidiaries
We may not permit any Restricted Subsidiary, directly or indirectly, to
Guarantee, assume or in any other manner become liable for the payment of any of
our Debt, other than our Debt:
- Incurred pursuant to clauses (1), (3), (5), (9) (other than (x) Debt in
the form of, or represented by, bonds or other securities or any
Guarantee thereof and (y) Debt that is, or may be, quoted, listed or
purchased and sold on any stock exchange, automated trading system or
over-the-counter or other securities market (including, without prejudice
to the generality of the foregoing, the market for securities eligible
for resale pursuant to Rule 144A under the Securities Act)) or (11) of
the second paragraph of "Limitation on Debt;" or
- refinanced pursuant to clause (4) of the second paragraph of "Limitation
on Debt" of Debt originally incurred under clause (3), (5) or (9) of the
second paragraph of "Limitation on Debt," that is pari passu with or
subordinate in right of payment to the notes,
unless:
- the Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture providing for a Guarantee of payment of the notes
by the Restricted Subsidiary and, with respect to any Guarantee of our
Debt that is subordinate in right of payment to the notes, the Guarantee
shall be subordinated to the Restricted Subsidiary's Guarantee with
respect to the notes at least to the same extent as the Debt is
subordinated to the notes; and
- the Restricted Subsidiary waives, and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against us or any other
Restricted Subsidiary as a result of any payment by a Restricted
Subsidiary under its Guarantee until the notes have been paid in full or
otherwise satisfied or discharged.
However, any Guarantee by a Restricted Subsidiary may provide by its terms
that it shall be automatically and unconditionally released and discharged:
- in the event such Restricted Subsidiary is sold or disposed of (whether
by merger, consolidation, the sale of its Capital Stock or the sale of
all or substantially all of its assets (other than by lease) and whether
or not such Restricted Subsidiary is the surviving corporation in such
transaction) to a Person which is not an Affiliate of Globix if the sale
or other disposition, including the application of the proceeds
therefrom, is in compliance with the Indenture; or
- in the event of the release or discharge of the Guarantee which resulted
in the creation of the Restricted Subsidiary's Guarantee with respect to
the notes, except a discharge or release by or as a result of payment
under a Guarantee.
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Limitation on Restricted Payments
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock to Persons other than us or any of our
Restricted Subsidiaries, other than:
- pro rata dividends or distributions payable solely in shares of its
Capital Stock, other than Disqualified Stock, or in options, warrants
or other rights to acquire shares of Capital Stock, other than
Disqualified Stock;
- pro rata dividends or distributions on common stock of Restricted
Subsidiaries held by minority stockholders; or
- dividends in respect of Disqualified Stock;
(2) purchase, redeem, retire or otherwise acquire for value any shares
of our Capital Stock or the Capital Stock of an Unrestricted Subsidiary
including options, warrants or other rights to acquire shares of Capital
Stock, held by any Person, or any shares of Capital Stock of a Restricted
Subsidiary, including options, warrants or other rights to acquire shares
of Capital Stock, held by any Person other than us or one of our Wholly
Owned Restricted Subsidiaries, provided, however that this clause (2) shall
not prohibit an Investment which would be considered a Permitted Investment
under the first clause of the definition of Permitted Investment or the
purchase by a Restricted Subsidiary of its Capital Stock;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of our Debt that is subordinated in right of payment
to the notes; or
(4) make any Investment, other than a Permitted Investment, in any
Person;
(the payments or any other actions described in clauses (1) through (4)
above being collectively "Restricted Payments") if, at the time of, and
after giving effect to, the proposed Restricted Payment:
- a Default or Event of Default shall have occurred and be continuing;
- we could not Incur at least $1.00 of Debt under the first paragraph of
the "Limitation on Debt" covenant; or
- the aggregate amount of all Restricted Payments (which amount, if
other than cash, is to be determined in good faith by the board of
directors, whose determination shall be conclusive and evidenced by a
board resolution), made after the date of original issuance of the
notes shall exceed the sum (the "Restricted Payment Basket") of:
- cumulative Consolidated EBITDA since the date of original issuance
of the notes through the last day of the last full fiscal quarter
ending immediately preceding the date of the Restricted Payment for
which quarterly or annual financial statements are available; minus
- 1.5 times our cumulative Consolidated Interest Expense since the
date of original issuance of the notes through the last day of the
last full fiscal quarter ending immediately preceding the date of
the Restricted Payment for which quarterly or annual financial
statements are available; plus
- the aggregate Net Cash Proceeds received by us after the original
issuance date of the notes from the issuance and sale of our
Capital Stock, other than Disqualified Stock, to a Person who is
not one of our Subsidiaries, including an issuance or sale
permitted by the indenture of our convertible Debt for cash
subsequent to the original issuance date of the notes upon the
conversion of that Debt into our Capital Stock, other than
Disqualified Stock, or from the issuance to a Person who is not one
of our Subsidiaries of any options, warrants or other rights to
acquire our Capital Stock, other than Disqualified Stock,
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exclusive of any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be
redeemed, prior to the stated final maturity date of the notes, in
each case, except to the extent Net Cash Proceeds are used to Incur
Debt pursuant to clause (6) of the second paragraph under the
"Limitation on Debt" covenant; plus
- the aggregate amount of the fair market value at the time of
issuance (as determined by the board of directors of Globix in good
faith and evidenced by a resolution of such board of directors
filed with the trustee) of our Capital Stock, other than
Disqualified Stock, issued in exchange for long term assets to be
used in the Internet Service Business or for the Capital Stock of a
Person primarily engaged in the Internet Service Business which as
a result of such acquisition becomes a Restricted Subsidiary, in
each case, acquired by us after the original issuance date of the
notes, except to the extent the fair market value of our Capital
Stock is used to Incur Debt pursuant to clause (7) of the second
paragraph under the "Limitation on Debt" covenant, provided that
with respect to the acquisition of a Person, the fair market value
of the Capital Stock shall be reduced by the amount of goodwill
recorded in connection with such acquisition; plus
- an amount equal to the net reduction in Investments, other than
reductions in Permitted Investments, in any Person resulting from
payments of interest on Debt, dividends, repayments of loans or
advances, or other transfers of assets, in each case to us or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale
of any Investment except, in each case, to the extent any payment
or proceeds are included in the calculation of Consolidated EBITDA,
or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries, not to exceed, in each case, the amount of
Investments previously made by us or any Restricted Subsidiary in a
Person or Unrestricted Subsidiary.
The provision above shall not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at the date of declaration, the payment would
comply with the paragraph above;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Debt that is subordinated in right of payment to
the notes including premium, if any, and accrued and unpaid interest, with
the proceeds of Debt Incurred under clause (4) of the second paragraph of
the "Limitation on Debt" covenant;
(3) the repurchase, redemption or other acquisition of our Capital
Stock or the Capital Stock of one of our Subsidiaries, or options, warrants
or other rights to acquire the Capital Stock, in exchange for (including
upon exercise of a conversion right) or out of the proceeds of a capital
contribution or a substantially concurrent offering of, shares of our
Capital Stock, other than Disqualified Stock, or options, warrants or other
rights to acquire the Capital Stock, other than Disqualified Stock;
(4) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of our Debt which is
subordinated in right of payment to the notes in exchange for, or out of
the proceeds of, a capital contribution or a substantially concurrent
offering of, shares of our Capital Stock, other than Disqualified Stock, or
options, warrants or other rights to acquire Capital Stock, other than
Disqualified Stock;
(5) payments or distributions to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger
or transfer of assets that complies with the provisions of the indenture
applicable to mergers, consolidations and transfers of all or substantially
all of our property and assets, and payments of cash instead of fractional
shares;
(6) Investments in any Person provided that the aggregate amount of
Investments made pursuant to this clause (6) does not exceed the sum of:
- the amount of Net Cash Proceeds received by us after the original
issuance date of the notes from the sale of our Capital Stock, other
than Disqualified Stock, to a Person who is not our
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Subsidiary, except to the extent the Net Cash Proceeds are used to
Incur Debt pursuant to clause (6) of the second paragraph of the
"Limitation on Debt" covenant or to make Restricted Payments pursuant
to the third clause of the Restricted Payment Basket calculation in
the first paragraph, or clauses (3) or (4) of this paragraph, of this
"Limitation on Restricted Payments" covenant, plus
- the net reduction in Investments made pursuant to this clause (6),
other than reductions in Permitted Investments, resulting from
distributions on or repayments of the Investments or from the Net Cash
Proceeds from the sale of any Investment, except in each case to the
extent any payment or proceeds is included in the calculation of
Consolidated EBITDA, or from a Person becoming a Restricted
Subsidiary; provided that the net reduction in any Investment shall
not exceed the amount of the Investment;
(7) Investments acquired in exchange for our Capital Stock, other than
Disqualified Stock;
(8) the purchase, redemption or other acquisition or retirement of our
common stock or any, warrant, option or other right to acquire shares of
our common stock from our employees or the employees of our Subsidiaries in
an amount not to exceed $2.0 million in any fiscal year; provided that
amounts not paid for any purchase, redemption or other acquisition or
retirement in any fiscal year may be accumulated and paid in any subsequent
fiscal year;
(9) additional Restricted Payments not to exceed $30.0 million in the
aggregate; or
(10) the acquisition of our Capital Stock by us in connection with the
cashless exercise of any options, warrants or similar rights issued by us.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (2) thereof and an
exchange of Capital Stock for Capital Stock or Debt referred to in clause (3) or
(4) thereof), and the Net Cash Proceeds from any issuance of Capital Stock
referred to in clauses (3), (4) and (6), shall be included in calculating
whether any subsequent Restricted Payment would exceed the Restricted Payment
Basket contained in the first paragraph of this "Limitation on Restricted
Payments" covenant. In the event the proceeds of an issuance of our Capital
Stock are used for the redemption, repurchase or other acquisition of the notes,
or Debt that is pari passu with the notes, then the Net Cash Proceeds of the
issuance shall be included in the first paragraph of this "Limitation on
Restricted Payments" covenant only to the extent the proceeds are not used for
redemption, repurchase or other acquisition of such Debt.
Limitation on Asset Sales
We will not, and will not permit any Restricted Subsidiary to, consummate
an Asset Sale unless:
- we or the Restricted Subsidiary, as the case may be, receive
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of, as evidenced by
a resolution of the board of directors; and
- at least 75% of the consideration received by us or the Restricted
Subsidiary, as the case may be, from the Asset Sale shall be cash or
other Qualified Consideration.
We or any Restricted Subsidiary may, within 365 days of the Asset Sale,
invest the Net Cash Proceeds:
- in property or assets used, or to be used, in the Internet Service
Business, or in a company engaged primarily in the Internet Service
Business, if and to the extent otherwise permitted under the indenture;
or
- to repay any of our Debt, other than subordinated debt, or any Debt of
any Restricted Subsidiary.
The amount of the Net Cash Proceeds not used or invested within 365 days of
the Asset Sale in the manner described in the foregoing clauses shall constitute
"Excess Proceeds."
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In the event that Excess Proceeds exceed $10.0 million, we shall make an
Offer to Purchase that amount of notes equal to the amount of Excess Proceeds at
a price equal to 100% of the principal amount of the notes to be purchased, plus
accrued and unpaid interest and liquidated damages, if any, to the date of
purchase and, to the extent required by the terms of our other Debt, our other
Debt that is pari passu with the notes or Debt of a Restricted Subsidiary. Each
Offer to Purchase shall be mailed within 30 days following the date that we
shall become obligated to purchase notes with any Excess Proceeds. Following the
completion of an Offer to Purchase, the amount of Excess Proceeds shall be
deemed to be reset at zero and, to the extent there are any remaining Excess
Proceeds we may use Excess Proceeds for any use which is not otherwise
prohibited by the indenture.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent the laws and
regulations are applicable in connection with the purchase of notes pursuant to
the Offer to Purchase.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
We may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
- pay dividends, in cash or otherwise, or make any other distributions in
respect of its Capital Stock owned by us or any other Restricted
Subsidiary or pay any Debt or other obligation owed to us or any other
Restricted Subsidiary;
- make loans or advances to us or any other Restricted Subsidiary; or
- transfer any of its property or assets to us or any other Restricted
Subsidiary.
However, we may, and may permit any Restricted Subsidiary to, suffer to
exist any encumbrance or restriction:
- pursuant to any agreement in effect on the date of original issuance of
the notes, and any amendments, extensions, refinancings, refundings,
renewals, restatements or replacements of agreements, provided that the
amendments, encumbrances and restrictions in any extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the holders, than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed,
restated or replaced;
- existing under or by reason of applicable law;
- existing or arising in connection with any Permitted Senior Bank Debt or
any Debt incurred pursuant to clause (5) of the second paragraph of
"Limitations on Debt," provided that with respect to Debt incurred
pursuant to such clause (5) the encumbrance or restriction is not
applicable to any Person or assets other than the assets or Person so
acquired with the Debt incurred pursuant to such clause (5);
- pursuant to an agreement existing prior to the date on which a Person
became a Restricted Subsidiary and not Incurred in anticipation of
becoming a Restricted Subsidiary, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person so acquired;
- pursuant to an agreement entered into in connection with Debt Incurred
under clause (4) of the second paragraph of the "Limitation on Debt"
covenant; provided, however, that the provisions contained in any
agreement related to an encumbrance or restriction are no more
restrictive in any material respect than the provisions contained in the
agreement that is the subject of the refinancing;
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- contained in any agreement relating to a Lien on any property or assets
of a Restricted Subsidiary or us otherwise permitted under the indenture,
but only to the extent the restrictions restrict the transfer of the
property subject to the Lien;
- pursuant to customary nonassignment provisions entered into in the
ordinary course of business in leases, licenses and other contracts to
the extent the provisions restrict the transfer, sublicensing or any
license or subletting of any lease or the assignment of rights under any
such contract;
- with respect to a Restricted Subsidiary imposed pursuant to an agreement
which has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of the Restricted
Subsidiary; provided that consummation of the transaction would not
result in an Event of Default or an event that, with the passing of time
or the giving of notice, or both, would constitute an Event of Default,
that the restriction terminates if the transaction is closed or abandoned
and that the closing or abandonment of the transaction occurs within one
year of the date the agreement was entered into;
- imposed pursuant to contracts for the sale of assets with respect to the
transfer of the assets to be sold pursuant to the contract;
- arising or agreed to in the ordinary course of business, not relating to
any Debt, and that do not, individually, or in the aggregate, detract
from the value of our property or assets or the property or assets of any
Restricted Subsidiary in any manner material to us or any Restricted
Subsidiary; or
- contained in the terms of any agreement entered into in connection with
the Incurrence of Debt if:
- the encumbrance or restriction applies only in the event of a payment
default or a default with respect to a financial covenant contained in
the Debt or agreement,
- the encumbrance or restriction is not materially more disadvantageous
to the holders of the notes than is customary in comparable
financings, and
- we determine that any encumbrance or restriction will not materially
affect our ability to make principal or interest payments on the
notes.
Limitation on Liens
We may not, and may not permit any Restricted Subsidiary to, Incur or
suffer to exist any Lien, on or with respect to any property or assets now owned
or hereafter acquired to secure any Debt without making, or causing the
Restricted Subsidiary to make, effective provision for securing the notes:
- equally and ratably with Debt as to such property or assets for so long
as the Debt will be so secured or;
- in the event the Debt is our Debt which is subordinate in right of
payment to the notes, prior to this Debt as to such property or assets
for so long as this Debt will be so secured.
The foregoing restrictions shall not apply to:
- Liens in existence on the date of original issuance of the notes;
- Liens securing only the notes and any Lien in favor of the trustee for
the benefit of the holders arising under the provisions in the indenture;
- Liens granted by a Restricted Subsidiary in favor of us or any Restricted
Subsidiary;
- Liens to secure Permitted Senior Bank Debt;
- Liens securing Purchase Money Secured Debt;
- Liens on property existing immediately prior to the time of its
acquisition, and not Incurred in anticipation of the financing of the
acquisition, provided that such Lien extends only to the acquired
property;
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- Liens on property of a Person existing at the time the Person becomes a
Restricted Subsidiary and not incurred in anticipation of becoming a
Restricted Subsidiary, provided that such Lien extends only to such
property;
- any interest in or title of a lessor to any property subject to a Capital
Lease Obligation which is permitted under the indenture;
- Liens on the property or assets of a Restricted Subsidiary securing Debt
of such Subsidiary, which Debt is permitted under the indenture; or
- Liens to secure Debt Incurred pursuant to clause (4) of the second
paragraph of the "Limitation on Debt" covenant; provided that the Lien
does not extend to any property other than the property securing the Debt
being replaced, refunded or refinanced pursuant to clause (4) of the
second paragraph of the "Limitation on Debt" covenant.
Limitation on Issuance or Sale of Capital Stock of Restricted Subsidiaries
We will not sell, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary, including options, warrants or other rights to purchase shares of
Capital Stock, except:
- to us or one of our Wholly Owned Restricted Subsidiaries;
- issuances of director's qualifying shares or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law; or
- issuances or sales of common stock of a Restricted Subsidiary, provided
that (1) the proceeds therefrom shall be treated as proceeds from an
Asset Sale in accordance with the "Limitation on Asset Sales" covenant
and (2) if, immediately after giving effect to the issuance or sale, the
Restricted Subsidiary would no longer constitute a Restricted Subsidiary,
any Investment in any Person remaining after giving effect to the
issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of the
issuance or sale.
Transactions with Affiliates and Related Persons
We may not, and may not permit any Restricted Subsidiary to, enter into any
transaction, or series of related transactions, not in the ordinary course of
business with our Affiliates or Related Persons, other than us or a Wholly Owned
Restricted Subsidiary, involving aggregate consideration in excess of $2.0
million, including any Investment, either directly or indirectly, unless the
transaction is on terms no less favorable to us or the Restricted Subsidiary
than those that could be obtained in a comparable arm's-length transaction with
an entity that is not an Affiliate or Related Person and in our best interests
or the best interests of the Restricted Subsidiary. For any transaction, or
series of related transactions, that involves aggregate consideration in excess
of $2.0 million but less than or equal to $10.0 million, our Chief Executive
Officer, President, Chief Financial Officer or Chief Operating Officer shall
determine that the transaction satisfies the above criteria and shall evidence a
determination by an Officer's Certificate filed with the trustee. For any
transaction that involves aggregate consideration in excess of $10.0 million:
- a majority of the disinterested members of the board of directors shall
determine that the transaction satisfies the above criteria; or
- we shall obtain a written opinion of a nationally recognized investment
banking or appraisal firm stating that the transaction is fair to us or
the Restricted Subsidiary.
The limitation above does not apply, and shall not apply, to:
- any transaction solely between us and any of our Wholly Owned Restricted
Subsidiaries or solely between any of our Wholly Owned Restricted
Subsidiaries;
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- the payment of reasonable and customary regular fees to our directors who
are not our employees;
- licensing or sublicensing or the use of any intellectual property by us
or any Wholly Owned Restricted Subsidiary of Globix to us or any Wholly
Owned Restricted Subsidiary of Globix;
- any transaction entered into for the purpose of granting or altering
registration rights with respect to any of our Capital Stock;
- any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant; or
- compensation, severance and employee benefit arrangements with our or any
Restricted Subsidiary's officers, directors or employees, including under
any stock option or stock incentive plans, in the ordinary course of
business.
Limitation on Sale-Leaseback Transactions
We will not, and will not permit any Restricted Subsidiary to, enter into
any sale-leaseback transaction involving any of our assets or properties,
whether now owned or hereafter acquired, whereby we or a Restricted Subsidiary
sell or transfer the assets or properties and then or thereafter lease the
assets or properties or any part thereof or any other assets or properties that
we or the Restricted Subsidiary, as the case may be, intend to use for
substantially the same purpose or purposes as the assets or properties sold or
transferred.
The above restriction does not apply to any sale-leaseback transaction if:
- the lease is for a period, including renewal rights, of not in excess of
three years;
- the sale-leaseback transaction is consummated within 180 days after the
purchase of the assets subject to the transaction;
- the transaction is solely between us and any of our Wholly Owned
Restricted Subsidiaries or solely between our Wholly Owned Restricted
Subsidiaries; or
- we or the Restricted Subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, apply an amount no
less than the Net Cash Proceeds received from the sale in accordance with
the second paragraph of "-- Limitation on Asset Sales."
Provision of Financial Information
Whether or not we are required to be subject to Section 13(a) or 15(d) of
the Exchange Act, we shall file with the Commission the annual reports,
quarterly reports and other documents which we would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) or any successor
provision if we were so required. These documents must be filed with the
Commission on or prior to the respective dates (each a "Required Filing Date,"
collectively, the "Required Filing Dates") by which we would have been required
so to file the documents if we were so required. We shall also in any event:
- within 15 days of each Required Filing Date (1) transmit by mail to all
holders, as their names and addresses appear in the Note Register,
without cost to the holders, and (2) file with the trustee, copies of the
annual reports, quarterly reports and other documents which we file with
the Commission pursuant to Section 13(a) or 15(d) or any successor
provision or would have been required to file with the Commission
pursuant to Section 13(a) or 15(d) or any successor provisions if we were
required to be subject to these Sections; and
- if filing these documents by us with the Commission is not permitted
under the Exchange Act, promptly upon written request supply copies of
these documents to any prospective holder.
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Unrestricted Subsidiaries
We may designate any of our Subsidiaries to be an "Unrestricted Subsidiary"
as provided below in which event the Subsidiary and each other Person that is
then, or thereafter becomes, a Subsidiary of the Subsidiary will be deemed to be
an Unrestricted Subsidiary. "Unrestricted Subsidiary" means:
- any Subsidiary designated as such by the Board of Directors as set forth
below where (1) no default with respect to any Debt of the Subsidiary or
any Subsidiary of the Subsidiary, including any right which the holders
thereof may have to take enforcement action against the Subsidiary, would
permit, upon notice, lapse of time or both, any holder of any other Debt
in a principal amount in excess of $10.0 million of us and our
Subsidiaries, other than another Unrestricted Subsidiary, to declare a
default on the other Debt or cause the payment thereof to be accelerated
or payable prior to its final scheduled maturity and (2) we could make a
Restricted Payment in an amount equal to the greater of the fair market
value and book value of the Subsidiary at the time of designation
pursuant to "Limitation on Restricted Payments" and the amount is
thereafter treated as a Restricted Payment for the purpose of calculating
the aggregate amount available for Restricted Payments thereunder; and
- any Subsidiary of an Unrestricted Subsidiary.
The board of directors may not designate a Subsidiary to be an Unrestricted
Subsidiary if the Subsidiary owns any Capital Stock of, or owns or holds any
Lien on any property of, any of our other Subsidiaries which is not a Subsidiary
of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary.
The board of directors may designate any Unrestricted Subsidiary a Restricted
Subsidiary and shall be deemed to have made this designation if at that time the
condition set forth in the item listed under in the definition of "Unrestricted
Subsidiary" shall cease to be true, in which case any Debt of such Subsidiary
shall be deemed to be incurred as of such date.
The Board of Directors of Globix may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that immediately after giving effect to
such designation, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and Globix could incur at
least $1.00 of additional Debt under the first paragraph of the "Limitation on
Debt" covenant on a pro forma consolidated basis taking into account such
designation.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
We may not, in a single transaction or a series of related transactions,
(1) consolidate or merge with or into any other Person or permit any other
Person to consolidate or merge with or into us or (2) directly or indirectly
transfer, sell, lease or otherwise dispose of all or substantially all of its
assets, unless:
- in a transaction in which we do not survive or in which we sell, lease or
otherwise dispose of all or substantially all of our assets, the
successor entity to us shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District
of Columbia, and shall expressly assume, by a supplemental indenture
executed and delivered to the trustee in form satisfactory to the
trustee, all of our obligations under the indenture;
- immediately before and after giving effect to the transaction and
treating any Debt which becomes our obligation or an obligation of a
Restricted Subsidiary as a result of the transaction as having been
Incurred by us or the Restricted Subsidiary at the time of the
transaction, no Event of Default or event that with the passing of time
or the giving of notice, or both, would constitute an Event of Default
shall have occurred and be continuing;
- except in the case of any such consolidation or merger of us with or
into, or any such transfer, sale, lease or other disposition of assets
to, a Wholly Owned Restricted Subsidiary of Globix, immediately after
giving effect to the transaction, our Consolidated Net Worth, or the
Consolidated Net Worth of any other successor entity to us, is equal to
or greater than our Consolidated Net Worth immediately prior to the
transaction; and
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- except in the case of any consolidation or merger of us with or into, or
any such transfer, sale, lease or other disposition of assets to, a
Wholly Owned Restricted Subsidiary of Globix, immediately after giving
effect to the transaction and treating any Debt which becomes our
obligation or the obligation of a Restricted Subsidiary as a result of
the transaction as having been Incurred by us or the Restricted
Subsidiary at the time of the transaction, we, including any successor
entity to us, (a) could Incur at least $1.00 of additional Debt pursuant
to the provisions of the indenture described in the first paragraph under
"Limitation on Debt" above or (b) we, including any successor entity to
us, would have a Consolidated Debt to EBITDA Ratio immediately after
giving effect to the transaction which is less than or equal to our
Consolidated Debt to EBITDA Ratio immediately prior to the transaction if
the ratio immediately prior to the transaction is positive or greater
than or equal to such ratio if such ratio is negative.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used in this prospectus for which no
definition is provided.
"Acquisition Debt" means Debt of a Person existing at the time the Person
becomes a Restricted Subsidiary or assumed in connection with an Asset
Acquisition, and not Incurred in connection with, or in anticipation of, the
Person becoming a Restricted Subsidiary or an Asset Acquisition.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Person. For the purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of the Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Acquisition" means an acquisition by us or any of our Restricted
Subsidiaries of the property and assets of any Person other than us or any of
our Restricted Subsidiaries that constitute substantially all of a division or
line of business of the Person; provided that the property and assets acquired
are to be used in the Internet Service Business.
"Asset Sale" by any Person means any transfer, conveyance, sale, lease,
license or other disposition by such Person or any of its Restricted
Subsidiaries, including a consolidation or merger or other sale of the
Restricted Subsidiary with, into or to another Person in a transaction in which
the Restricted Subsidiary ceases to be a Restricted Subsidiary (collectively, a
"transfer"), of:
- shares of Capital Stock, other than directors' qualifying shares, or
other ownership interests of a Restricted Subsidiary of a Person;
- all or substantially all of the assets of a Person or any of its
Restricted Subsidiaries; or
- any other property, assets or rights, including intellectual property
rights, of a Person or any of its Restricted Subsidiaries outside of the
ordinary course of business;
provided that "Asset Sale" shall not include:
- any transfer of all or substantially all of our assets in a transaction
that is made in compliance with the requirements of provisions of the
indenture described under "-- Mergers, Consolidations and Certain Sales
of Assets;"
- any transfer by us to any Wholly Owned Restricted Subsidiary of Globix or
by any Wholly Owned Restricted Subsidiary of Globix to any other Wholly
Owned Subsidiary of Globix or to us in a manner that does not otherwise
violate the terms of the indenture;
- transfers made in compliance with the requirements of provisions of the
indenture described under "Limitation on Restricted Payments;"
- transfers constituting the granting of a Permitted Lien;
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- exchanges of equipment used in the Internet Service Business for other
equipment to be used in the Internet Service Business; provided any
exchange for equipment with a fair market value in excess of $2.0 million
must be approved by our board of directors; and
- transfers of assets, property or other rights, including intellectual
property rights, with a fair market value at the date of transfer of less
than $2.0 million.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (1) the sum of the products of (a)
the number of years from the date of determination to the dates of each
successive scheduled principal payment of the debt security and (b) the amount
of the principal payment, by (2) the sum of all of the principal payments.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of, or other Debt arrangements conveying
the right to use, real or personal property of a Person which is required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of a Person in accordance with GAAP. The principal amount of the
obligation shall be the capitalized amount thereof that would appear on the face
of a balance sheet of a Person in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents, however designated, of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Cash Equivalents" means:
- securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof,
provided that the full faith and credit of the United States is pledged
in support thereof, having maturities of six months or less from the date
of acquisition;
- certificates of deposit with maturities of not more than six months from
the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thompson Bank Watch Rating of "B" or better;
- repurchase obligations with a term of not more than seven days for
underlying securities of the types described in the first two clauses
above entered into with any financial institution meeting the
qualifications specified in the second clause above;
- municipal securities having the highest rating obtainable from Moody's
Investors Service, Inc. (or any successor thereto) or Standard & Poor's
Ratings Group (or any successor thereto) and in each case maturing within
60 days or less after the date of acquisition;
- commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. (or any successor thereto) or Standard & Poor's
Ratings Group (or any successor thereto) and in each case maturing within
six months after the date of acquisition; and
- money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in the foregoing clauses of this
definition.
"Change of Control" means the occurrence of one or more of the following
events:
- any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than a Permitted Holder or Permitted
Group, is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of Globix;
- during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Globix
(together with any new directors whose election to
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such board or whose nomination for election by the stockholders of Globix
was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved), cease
for any reason to constitute a majority of such Board of Directors then
in office;
- Globix consolidates with or merges with or into any Person or conveys,
transfers or leases all or substantially all of its assets to any Person,
or any corporation consolidates with or merges into or with Globix, in
any such event, pursuant to a transaction in which the outstanding Voting
Stock of Globix is changed into or exchanged for cash, securities or
other property, except (i) to the extent necessary to reflect a change in
the jurisdiction of incorporation of Globix or (ii) where no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) owns, other than a Permitted Holder or Permitted Group,
immediately after such transaction, directly or indirectly, more than 50%
of the total outstanding Voting Stock of the surviving corporation; or
- Globix is liquidated or dissolved or adopts a plan of liquidation or
dissolution.
Notwithstanding the foregoing, in the event any transaction would result in a
change of control with respect to our 13% senior notes such transaction shall be
deemed a change of control for purposes of the notes as well.
"Common Stock" of any Person means Capital Stock of a Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of the Person.
"Consolidated Accounts Receivable" means the consolidated accounts
receivable (net of the allowance for doubtful accounts calculated in accordance
with GAAP) of Globix and its Restricted Subsidiaries that are not more than 60
days past their due date and that were entered into in the ordinary course of
business on normal payment terms as shown on the most recent internal
consolidated balance sheet of Globix and its Restricted Subsidiaries calculated
on a consolidated basis in accordance with GAAP.
"Consolidated Debt to EBITDA Ratio" means the ratio of:
- the total consolidated Debt as of the date of calculation (the
"Determination Date") to
- four times the Consolidated EBITDA for the latest fiscal quarter for
which financial information is available immediately preceding the
Determination Date (the "Measurement Period").
For purposes of calculating Consolidated EBITDA for the Measurement Period
immediately prior to the relevant Determination Date:
- any Person that is a Restricted Subsidiary on the Determination Date, or
would become a Restricted Subsidiary on the Determination Date in
connection with the transaction that requires the determination of the
Consolidated EBITDA, will be deemed to have been a Restricted Subsidiary
at all times during the Measurement Period;
- any Person that is not a Restricted Subsidiary on the Determination Date,
or would cease to be a Restricted Subsidiary on the Determination Date in
connection with the transaction that requires the determination of the
Consolidated EBITDA, will be deemed not to have been a Restricted
Subsidiary at any time during the Measurement Period; and
- if we or any Restricted Subsidiary shall have in any manner (1) acquired
through an acquisition or the commencement of activities constituting the
operating business, or (2) disposed of by an Asset Sale or the
termination or discontinuance of activities constituting such operating
business any operating business during the Measurement Period or after
the end of the period and on or prior to the Determination Date, the
calculation will be made on a pro forma basis in accordance with GAAP as
if all transactions had been consummated prior to the first day of the
Measurement Period, it being understood that in calculating Consolidated
EBITDA the exclusions set forth in the
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definition of Consolidated Net Income shall apply to any Person acquired
as if it were a Restricted Subsidiary.
"Consolidated EBITDA" means, with respect to any period, Consolidated Net
Income for the period increased, without duplication, to the extent deducted in
calculating the Consolidated Net Income, by:
- Consolidated Income Tax Expense for the period;
- Consolidated Interest Expense for the period without regard to the
proviso therein; and
- depreciation, amortization and any other non-cash items for the period,
less any non-cash items to the extent they increase Consolidated Net
Income, including the partial or entire reversal of reserves taken in
prior periods, for the period, for us and any Restricted Subsidiary,
including, without limitation, amortization of capitalized debt issuance
costs for the period,
all of the foregoing determined on a consolidated basis for us and Restricted
Subsidiaries in accordance with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary of Globix, Consolidated
EBITDA shall be reduced, to the extent not otherwise reduced in accordance with
GAAP, by an amount equal to:
- the amount of Consolidated EBITDA attributable to such Restricted
Subsidiary, multiplied by
- the percentage ownership interest in a Restricted Subsidiary not owned on
the last day of a period by us or any of our Restricted Subsidiaries.
"Consolidated Income Tax Expense" for any period means the consolidated
provision for our income taxes and the income taxes of our Restricted
Subsidiaries for the period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in the consolidated income statement of Globix and its
Restricted Subsidiaries, without deduction of interest income, for a period
calculated on a consolidated basis in accordance with GAAP, including without
limitation or duplication, or, to the extent not so included, with the addition
of:
- the amortization of Debt discounts;
- any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
- fees, net of any amounts received, with respect to any Interest Rate or
Currency Protection Agreement;
- interest on Debt guaranteed by us and our Restricted Subsidiaries, to the
extent paid by us or any Restricted Subsidiary; and
- the portion of any Capital Lease Obligation allocable to interest
expense.
Notwithstanding the foregoing, if any Restricted Subsidiary is not a Wholly
Owned Restricted Subsidiary of Globix, Consolidated Interest Expense shall be
reduced, to the extent not otherwise reduced in accordance with GAAP, by an
amount equal to the amount of Consolidated Interest Expense attributable to the
Restricted Subsidiary, multiplied by the percentage ownership interest in the
Restricted Subsidiary not owned on the last day of the period by us or any of
our Restricted Subsidiaries.
"Consolidated Net Income" for any period means our consolidated net income
or loss of and the consolidated net income of our Restricted Subsidiaries for a
period determined on a consolidated basis in accordance with GAAP; provided that
there shall be excluded therefrom:
- the net income or loss of any Person acquired by us or any of our
Restricted Subsidiaries in a pooling-of-interests transaction for any
period prior to the date of the transaction;
- the net income or loss of any Person that is not our Restricted
Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to us or our Restricted Subsidiary by the
Person during the period;
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- gains or losses on Asset Sales by us or our Restricted Subsidiaries;
- all extraordinary gains and extraordinary losses;
- the cumulative effect of changes in accounting principles; and
- the tax effect of any of the items described in the foregoing clauses.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less amounts attributable to Disqualified Stock of such Person; provided
that, with respect to us, adjustments following the date of the indenture to our
accounting books and records in accordance with Accounting Principles Board
Opinions Nos. 16 and 17, or successor opinions thereto, or otherwise resulting
from the acquisition of control of us by another Person shall not be given
effect.
"Consolidated Tangible Assets" means, with respect to Globix, the total
consolidated assets of Globix and its Restricted Subsidiaries, less the total
intangible assets of Globix and its Restricted Subsidiaries, as shown on the
most recent internal consolidated balance sheet of the Globix and such
Restricted Subsidiaries calculated on a consolidated basis in accordance with
GAAP.
"Debt" means, without duplication, with respect to any Person, whether
recourse is to all or a portion of the assets of the Person and whether or not
contingent:
- every obligation of the Person for money borrowed;
- every obligation of the Person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
- every reimbursement obligation of the Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of the Person, including reimbursement obligations with respect thereto,
but excluding obligations with respect to trade letters of credit
securing obligations entered into in the ordinary course of business to
the extent the letters of credit are not drawn upon or, if drawn upon, to
the extent the drawing is reimbursed no later than the third business day
following receipt by the Person of a demand for reimbursement;
- every obligation of the Person issued or assumed as the deferred purchase
price of property or services, including securities repurchase
agreements;
- every Capital Lease Obligation of the Person;
- all Disqualified Stock issued by the Person;
- if the Person is a Restricted Subsidiary, all Preferred Stock issued by
the Person;
- every obligation under Interest Rate or Currency Protection Agreements of
the Person; and
- every obligation of the type referred to in the foregoing clauses of
another Person and all dividends of another Person the payment of which,
in either case, the Person has Guaranteed or is responsible or liable,
directly or indirectly, as obligor, Guarantor or otherwise.
The "amount" or "principal amount" of Debt at any time of determination as
used herein represented by:
- any contingent Debt, shall be the maximum principal amount thereof;
- any Debt issued at a price that is less than the principal amount at
maturity thereof, shall be the amount of the liability in respect thereof
determined in accordance with GAAP;
- any Disqualified Stock, shall be the maximum fixed redemption or
repurchase price in respect thereof; and
- any Preferred Stock, shall be the maximum voluntary or involuntary
liquidation preference plus accrued and unpaid dividends in respect
thereof, in each case as of such time of determination.
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In no event shall "Debt" include any trade payable or accrued expenses
arising in the ordinary course of business.
"Disqualified Stock" of any Person means any Capital Stock of the Person
that by its terms, or by the terms of any security into which it is convertible
or for which it is exchangeable, is, in whole or in part, redeemable at the
option of the holder thereof, or otherwise matures or is required to be
redeemed, pursuant to any sinking fund obligation or otherwise, but other than
as a result of the death or disability of the holder thereof or the termination
of the employment with us or one of our subsidiaries of the holder thereof, or
is convertible into or exchangeable (in each case at the option of the holder)
for Debt, at any time prior to the final maturity of the notes; provided,
however, that any Capital Stock which would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require us or our
Restricted Subsidiary to repurchase or redeem the Capital Stock upon the
occurrence of an "Asset Sale" or a "Change of Control" occurring prior to the
final maturity date of the notes shall not constitute Disqualified Stock if the
provisions applicable to the Capital Stock are no more favorable to the holders
of the stock than the corresponding provisions applicable to the notes contained
in the indenture and the provisions applicable to the Capital Stock specifically
provide that we and our Restricted Subsidiaries will not repurchase or redeem
any of the stock pursuant to the provisions prior to the repurchase of such
notes as are required to be repurchased pursuant to the indenture upon an Asset
Sale or a Change of Control.
"Eligible Debt" means (i) Acquisition Debt and (ii) any other Debt other
than, with respect to this clause (ii), (x) Debt in the form of, or represented
by, bonds or other securities or any Guarantee thereof and (y) Debt that is, or
may be, quoted, listed or purchased and sold on any stock exchange, automated
trading system or over-the-counter or other securities market (including,
without prejudice to the generality of the foregoing, the market for securities
eligible for resale pursuant to Rule 144A under the Securities Act).
"Existing Debt" shall mean our Debt and the Debt of our Restricted
Subsidiaries in existence on the original issue date of the notes, including the
notes.
"GAAP" means generally accepted accounting principles in the United States
which are in effect on the date of original issuance of the notes, consistently
applied.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
the Person guaranteeing, or having the economic effect of guaranteeing, any Debt
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including, without limitation, any obligation of the Person to:
- purchase or pay or advance or supply funds for the purchase or payment of
the Debt or to purchase or to advance or supply funds for the purchase of
any security for the payment of the Debt;
- purchase property, securities or services for the purpose of assuring the
holder of the Debt of the payment of the Debt; or
- maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay the Debt, and "Guaranteed," "Guaranteeing" and "Guarantor"
shall have meanings correlative to the foregoing; provided, however, that
the Guaranty by any Person shall not include endorsements by the Person
for collection or deposit, in either case, in the ordinary course of
business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur, by conversion, exchange or otherwise, assume, Guarantee
or otherwise become liable in respect of the Debt or other obligation including
by acquisition of Restricted Subsidiaries or the recording, as required pursuant
to GAAP or otherwise, of any of the Debt or other obligation on the balance
sheet of the Person, and "Incurrence," "Incurred," "Incurrable" and "Incurring"
shall have meanings correlative to the foregoing; provided, however, that a
change in GAAP that results in an obligation of the Person that exists at such
time becoming Debt shall not be deemed an Incurrence of the Debt. For the
avoidance of doubt, the accretion of original issue discount shall not be deemed
an Incurrence.
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"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement, including, without limitation, caps, floors, collars and similar
agreements, relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Internal Revenue Code" means the Internal Revenue Code of 1986 and any
successor thereto.
"Internet Service Business" means:
(i) any business principally engaged in:
(a) the operation of an internet connectivity or internet
enhancement service as it exists from time to time, including, without
limitation, dial up or dedicated internet service, web hosting or
co-location services, security solutions, the provision and development
of software in connection therewith, configuration services, electronic
commerce, intranet solutions, data backup and restoral, business content
and collaboration, communications tools or network equipment, products
or services; or
(b) the supply, provision, broadcast, delivery, distribution,
collection or retrieval of information or content reasonably believed
suitable for dissemination through the business, facilities or capacity
of Globix; or
(ii) any business or property reasonably related to any of the
foregoing.
A good faith determination by a majority of the Board of Directors as to whether
a business meets the requirements of this definition shall be conclusive, absent
manifest error.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution, by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise, to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person. Notwithstanding the foregoing, "Investment" shall not include (i)
deposits, partial payments or "earnest money" made in anticipation of a purchase
or acquisition that would be a Permitted Investment when consummated, (ii)
security deposits or prepayments with respect to operating leases or (iii)
payments made in connection with the renewals or exercise of any option to renew
an operating lease.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement, other than any easement not materially
impairing usefulness or marketability, encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets, including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing.
"Material Restricted Subsidiary" means, at any date of determination, any
Restricted Subsidiary that represents more than 10% of our total consolidated
assets at the end of the most recent fiscal quarter for which financial
information is available, or more than 10% of our consolidated net sales or
consolidated operating income for the most recent four fiscal quarters for which
financial information is available.
"Net Cash Proceeds" means:
- with respect to any Asset Sale by any Person, cash or Cash Equivalents
received, including by way of sale or discounting of a note, installment
receivable or other receivable, but excluding any other consideration
received in the form of assumption of Debt or other obligations relating
to the properties or assets, therefrom by the Person, net of:
- all legal, title and recording tax expenses, commissions and other
fees and expenses Incurred and all federal, state, foreign and local
taxes required to be accrued as a liability as a consequence of the
Asset Sale;
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- all payments made by the Person or its Restricted Subsidiaries on any
Debt which is secured by the assets in accordance with the terms of
any Lien upon or with respect to the assets or which must by the terms
of such Lien, or in order to obtain a necessary consent to the Asset
Sale or by applicable law, be repaid out of the proceeds from the
Asset Sale;
- all distributions and other payments made to minority interest holders
in Restricted Subsidiaries of the Person or joint ventures as a result
of the Asset Sale; and
- appropriate amounts to be provided by the Person or any Restricted
Subsidiary thereof, as the case may be, as a reserve in accordance
with GAAP against any liabilities associated with such assets and
retained by the Person or any Restricted Subsidiary thereof, as the
case may be, after the Asset Sale, including, without limitation,
liabilities under any indemnification obligations and severance and
other employee termination costs associated with the Asset Sale, in
each case as determined by the board of directors, in its reasonable
good faith judgment evidenced by a resolution of the board of
directors filed with the trustee; provided, however, that any
reduction in the reserve within 12 months following the consummation
of the Asset Sale will be treated for all purposes of the indenture
and the notes as a new Asset Sale at the time of the reduction with
Net Cash Proceeds equal to the amount of the reduction; and
- with respect to the issuance or sale of Capital Stock, or options,
warrants or rights to purchase Capital Stock, or debt securities or
Disqualified Stock that has been converted into or exchanged for Capital
Stock, the proceeds of the issuance or sale in the form of cash or Cash
Equivalents, including payments in respect of deferred payment
obligations, net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred
in connection with the issuance or sale, conversion or exchange and net
of any Consolidated Interest Expense attributable to any debt securities
paid to the holders thereof prior to the conversion or exchange and net
of taxes paid or payable as a result thereof.
"Note Register" shall mean the note registry maintained by the registrar.
"Offer to Purchase" means a written offer (the "offer") sent by us by first
class mail, postage prepaid, to each holder at his address appearing in the Note
Register on the date of the offer offering to purchase up to the principal
amount of notes specified in such offer at the purchase price specified in such
offer, as determined pursuant to the indenture. Unless otherwise required by
applicable law, the offer shall specify an expiration date (the "offer
expiration date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such offer and a settlement date (the "purchase date")
for purchase of notes within five business days after the offer expiration date.
We shall notify the trustee at least 15 business days, or such shorter period as
is acceptable to the trustee, prior to the mailing of the offer of our
obligation to make an offer to purchase, and the offer shall be mailed by us or,
at our request, by the trustee in the name and at our expense. The offer shall
contain information concerning our business and the business of our Restricted
Subsidiaries which we in good faith believe will enable such holders to make an
informed decision with respect to the Offer to Purchase, which at a minimum will
include:
- the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in the documents required to be filed with the
trustee pursuant to the indenture, which requirements may be satisfied by
delivery of the documents together with the offer;
- a description of material developments in our business subsequent to the
date of the latest of such financial statements referred to in the
foregoing clause, including a description of the events requiring us to
make the Offer to Purchase;
- if applicable, appropriate pro forma financial information concerning the
Offer to Purchase and the events requiring us to make the Offer to
Purchase; and
- any other information required by applicable law to be included therein.
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The offer shall contain all instructions and materials necessary to enable
such holders to tender notes pursuant to the Offer to Purchase. The offer shall
also state:
- the section of the indenture pursuant to which the Offer to Purchase is
being made;
- the offer expiration date and the purchase date;
- the aggregate principal amount of the outstanding notes offered to be
purchased by us pursuant to the Offer to Purchase, including, if less
than 100%, the manner by which such has been determined pursuant to the
Section of the indenture requiring the Offer to Purchase (the "purchase
amount");
- the purchase price to be paid by us for each $1,000 aggregate principal
amount of notes accepted for payment, as specified pursuant to the
indenture (the "purchase price");
- that the holder may tender all or any portion of the notes registered in
the name of the holder and that any portion of a note tendered must be
tendered in an integral of $1,000 principal amount;
- the place or places where notes are to be surrendered for tender pursuant
to the Offer to Purchase;
- that interest on any notes not tendered or tendered but not purchased by
us pursuant to the Offer to Purchase will continue to accrue;
- that on the purchase date the purchase price will become due and payable
upon each note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
purchase date;
- that each holder electing to tender a note pursuant to the Offer to
Purchase will be required to surrender the note at the place or places
specified in the Offer prior to the close of business on the offer
expiration date, the note being, if we or the trustee so require, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to us and the trustee duly executed by, the holder thereof
or his attorney duly authorized in writing;
- that holders will be entitled to withdraw all or any portion of notes
tendered if we or their paying agent receive, not later than the close of
business on the offer expiration date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the
principal amount of the note the holder tendered, the certificate number
of the note the holder tendered and a statement that such holder is
withdrawing all or a portion of his tender;
- that (1) if notes in an aggregate principal amount less than or equal to
the purchase amount are duly tendered and not withdrawn pursuant to the
Offer to Purchase, we shall purchase all the notes and (2) if notes in an
aggregate principal amount in excess of the purchase amount are tendered
and not withdrawn pursuant to the Offer to Purchase, we shall purchase
notes having an aggregate principal amount equal to the purchase amount
on a pro rata basis, with adjustments as may be deemed appropriate so
that only notes in denominations of $1,000 or integral multiples thereof
shall be purchased; and
- that in the case of any holder whose note is purchased only in part, we
shall execute, and the trustee shall authenticate and deliver to the
holder of the note without service charge, a new note or notes of any
authorized denomination as requested by, the holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the offer for such Offer to Purchase.
"Permitted Group" means any "person" or "group" (as such terms are used in
Section 13(d) and 14(d) of the Exchange Act) if the Permitted Holders have both
the voting power and the dispositive power relating to more than 50% of the
shares of Voting Stock of Globix beneficially owned by such person or group.
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"Permitted Holder" means each of Marc H. Bell and Hicks, Muse, Tate and
Furst Incorporated and (a) with respect to Marc H. Bell, (i) any spouse,
sibling, parent or child of Marc H. Bell, (ii) the estate of Marc H. Bell during
any period in which such estate holds Voting Stock of Globix for the benefit of
any Person referred to in clause (i), or (iii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially owning an interest of more than 50% of which consist of
Marc H. Bell and/or such other Persons referred to in the immediately preceding
clauses (i) and (ii), and (b) with respect to Hicks, Muse, Tate and Furst
Incorporated, any majority-owned Affiliate thereof.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions that is designed to protect the Person against
fluctuations in interest rates or currency exchange rates with respect to Debt
Incurred and which shall have a notional amount no greater than the payments due
with respect to the Debt being hedged thereby and not for purposes of
speculation.
"Permitted Investment" means:
- an Investment in us or a Restricted Subsidiary or a Person which will,
upon the making of the Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, us or a Restricted Subsidiary; provided
that the Person's primary business or the assets to be transferred or
conveyed are reasonably related, ancillary or complementary to the
Internet Service Business;
- Cash Equivalents;
- payroll, travel, relocation and similar advances to cover matters that
are expected at the time of the advances ultimately to be treated as
expenses in accordance with GAAP;
- stock, obligations or securities received (1) in satisfaction of
judgments or (2) in connection with the sale or disposition of a Person,
assets or business;
- Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and worker's compensation, performance and
other similar deposits;
- Permitted Interest Rate or Currency Agreements;
- a Strategic Investment;
- loans or advances to our officers or employees or officers or employees
of any Restricted Subsidiary that do not in the aggregate exceed $5.0
million at any time outstanding;
- Investments in any Person; provided that the aggregate amount of
Investments made pursuant to this clause does not exceed 5% of
Consolidated Tangible Assets; and
- accounts receivable in the ordinary course of business and Investments
obtained in exchange or settlement of accounts receivable for which we
have determined that collection is not likely.
"Permitted Lien" means any Lien on our assets or the assets of any
Restricted Subsidiary permitted under the "Limitation on Liens" covenant.
"Permitted Senior Bank Debt" means Debt Incurred by us or any Restricted
Subsidiary pursuant to one or more senior commercial term loan and/or revolving
credit facilities, including any letter of credit subfacility, entered into
principally with commercial banks and/or other financial institutions typically
party to commercial loan agreements, and any replacement, extension, renewal,
amendment, restatement, refinancing or refunding thereof; provided that the
aggregate principal amount of all Permitted Senior Bank Debt, at any one time
outstanding, shall not exceed $100.0 million plus 85% of our Consolidated
Accounts Receivable.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, government or any agency or political subdivision hereof or
any other entity.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes, however designated, that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Purchase Money Secured Debt" of any Person means Debt (whether provided by
a vendor or a third party) of the Person secured by a Lien on real or personal
property of the Person which Debt:
- constitutes all or a part of the purchase price or construction cost of
the property; or
- is Incurred prior to, at the time of or within 180 days after the latter
of the acquisition or the substantial completion of the property for the
purpose of financing all or any part of the purchase price or
construction cost thereof; provided, however, that:
- the Debt so incurred does not exceed 100% of the purchase price or
construction cost of the property and related expenses;
- the Lien does not extend to or cover any property other than the item
of property and any improvements on the item and proceeds thereof;
- the purchase price or construction cost for the property is or should
be included in "addition to property, plant and equipment" in
accordance with GAAP; and
- the purchase or construction of the property is not part of any
acquisition of a Person or business unit or line of business.
"Qualified Consideration" shall mean:
- cash;
- Cash Equivalents;
- assets that are used or useful in the Internet Service Business;
- any securities or other obligations that are converted into or exchanged
for cash or Cash Equivalents within six months after an Asset Sale; or
- our unsubordinated liabilities or the liabilities of a Restricted
Subsidiary assumed by the transferee, or its designee, such that we or
the Restricted Subsidiary have no further liability therefor, the amount
of the liability to be determined in accordance with GAAP.
"Related Person" of any Person means any other Person directly or
indirectly owning:
- 10% or more of the outstanding common stock of the Person or, in the case
of a Person that is not a corporation, 10% or more of the equity interest
in the Person; or
- 10% or more of the combined voting power of the Voting Stock of the
Person.
"Restricted Subsidiary" means any of our Subsidiaries, whether existing on
or after the date of the indenture, unless the Subsidiary is an Unrestricted
Subsidiary.
"Strategic Investment" means an Investment in any Person, other than an
Unrestricted Subsidiary, whose primary business is reasonably related, ancillary
or complementary to the Internet Service Business, and the Investment is
determined by our board of directors to promote or significantly benefit our
businesses and the businesses of our Restricted Subsidiaries on the date of the
Investment.
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"Subordinated Debt" means our Debt as to which the payment of principal of,
and premium, if any, and interest and other payment obligations in respect of
the Debt shall be subordinate to the prior payment in full of the notes to at
least the following extent:
- no payments of principal of or premium, if any, or interest on, or
otherwise due in respect of the Debt, may be permitted for so long as any
default in the payment of principal or premium, if any, or interest on
the notes exists;
- in the event that any other default that with the passing of time or the
giving of notice, or both, would constitute an Event of Default with
respect to the notes, upon notice by 25% or more in principal amount of
the notes to the trustee, the trustee shall have the right to give notice
to us and the holders of the Debt, or trustees or agents therefor, of a
payment blockage, and thereafter no payments of principal of or premium,
if any, or interest on or otherwise due in respect of the Debt may be
made for a period of 179 days from the date of the notice; and
- the Debt may not:
- provide for payments of principal of the Debt at its maturity or by
way of a sinking fund applicable thereto or by way of any mandatory
redemption, defeasance, retirement or repurchase thereof by us,
including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by
virtue of acceleration of the Debt upon an event of default
thereunder, in each case prior to the final maturity date of the
notes; or
- permit redemption or other retirement, including pursuant to an Offer
to Purchase made by us, of the other Debt at the option of the holder
thereof prior to the final maturity date of the notes, other than a
redemption or other retirement at the option of the holder of the
Debt, including pursuant to an Offer to Purchase made by us, which is
conditioned upon a change of control of us pursuant to provisions
substantially similar to those described under "Change of Control,"
and which shall provide that the Debt will not be repurchased pursuant
to these provisions prior to our repurchase of the notes required to
be repurchased by us pursuant to the provisions described under
"Change of Control;" provided, however, that any Debt which would
constitute Subordinated Debt but for provisions thereof giving holders
thereof the right to require us or a Restricted Subsidiary to
repurchase or redeem the Subordinated Debt upon the occurrence of an
Asset Sale occurring prior to the final maturity of the notes shall
constitute Subordinated Debt if the provisions applicable to the
Subordinated Debt are no more favorable to the holders of the Debt
than the provisions applicable to the notes contained in the covenant
described under "Limitation on Asset Sales" and the provisions
applicable to the Debt specifically provide that we and our Restricted
Subsidiaries will not repurchase or redeem any of the Debt pursuant to
these provisions prior to the repurchase of the notes as are required
to be repurchased pursuant to the covenant described under "Limitation
on Asset Sales."
"Subsidiary" of any Person means:
- a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by
the Person or by one or more other Subsidiaries of the Person or by the
Person and one or more Restricted Subsidiaries thereof; or
- any other Person, other than a corporation, in which the Person, or one
or more other Subsidiaries of the Person or the Person and one or more
other Subsidiaries thereof, directly or indirectly, has the power to
direct the policies, management and affairs thereof.
"U.S. government securities" means securities that are direct obligations
of the United States of America, direct obligations of the Federal Home Loan
Mortgage Corporation, direct obligations of the Federal National Mortgage
Association, securities which the timely payment of whose principal and interest
is unconditionally guaranteed by the full faith and credit of the United States
of America, trust
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<PAGE> 94
receipts or other evidence of a direct claim upon the instruments described
above and money market mutual funds that invest solely in these securities.
"Voting Stock" of any Person means Capital Stock of a Person which
ordinarily has voting power for the election of directors, or Persons performing
similar functions, at a Person, whether at all times or only so long as no
senior class of securities has voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of a Person all of the outstanding Capital Stock or other ownership
interests of which, other than directors' qualifying shares, shall at the time
be owned by the Person or by one or more Wholly Owned Restricted Subsidiaries of
the Person or by the Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
EVENTS OF DEFAULT
The following will be "Events of Default" under the indenture:
- failure to pay principal of or premium, if any, on any note when due upon
acceleration, optional or mandatory redemption, required repurchase or
otherwise;
- failure to pay interest on any note when due, and such default continues
for a period of 30 days;
- default in the payment of principal and interest on notes required to be
purchased pursuant to an Offer to Purchase as described under "Change of
Control" and "Asset Sales" when due and payable;
- failure to perform or comply with the provisions described under "Merger,
Consolidation and Certain Sales of Assets;"
- failure to perform any other of our covenants or agreements under the
indenture or the notes and such failure continues for 60 days after
written notice to us by the trustee or to the trustee and us by holders
of at least 25% in aggregate principal amount of outstanding notes;
- (1) any default by us or any Material Restricted Subsidiary in the
payment of the principal, premium, if any, or interest has occurred with
respect to amounts in excess of $10.0 million under any agreement,
indenture or instrument evidencing Debt when the same shall become due
and payable in full and the default shall have continued after any
applicable grace period and shall not have been cured or waived and, if
not already matured at its final maturity in accordance with its terms,
the holders of the Debt shall have the right to accelerate the Debt, or
(2) any event of default as defined in any of our agreements, indentures
or instruments or any agreements, indentures or instruments of any
Restricted Subsidiary evidencing Debt in excess of $10.0 million shall
have occurred and the Debt thereunder, if not already matured at its
final maturity in accordance with its terms, shall have been accelerated;
- the rendering of a final judgment or judgments against us or any
Restricted Subsidiary in an amount in excess of $10.0 million which
remains undischarged or unstayed for a period of 60 days after the date
on which the right to appeal has expired; and
- events of bankruptcy, insolvency or reorganization affecting us or any
Material Restricted Subsidiary.
Subject to the provisions of the indenture relating to the duties of the
trustee in case an Event of Default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless the holders
shall have offered to the trustee reasonable indemnity. Subject to provisions
for the indemnification of the trustee, the holders of a majority in aggregate
principal amount of the outstanding notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee.
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<PAGE> 95
If an Event of Default, other than events of bankruptcy, insolvency or
reorganization affecting us or any Material Restricted Subsidiary, shall occur
and be continuing, either the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding notes may accelerate the maturity
of all notes; provided, however, that after the acceleration, but before a
judgment or decree based on acceleration, the holders of a majority in aggregate
principal amount of outstanding notes may, under various circumstances, rescind
and annul the acceleration if all Events of Default, other than the nonpayment
of accelerated principal, have been cured or waived as provided in the
indenture. If an event of bankruptcy, insolvency or reorganization affecting us
or any Material Restricted Subsidiary occurs, the principal of and any accrued
interest on the notes then outstanding will ipso facto become immediately due
and payable without any declaration or other act on the part of the trustee or
any holder. For information as to waiver of defaults, see "Modification and
Waiver."
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless the holder shall
have previously given to the trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding notes shall have made written request, and offered
reasonable indemnity, to the trustee to institute such proceeding as trustee,
and the trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding notes a direction inconsistent
with the request and shall have failed to institute a proceeding within 60 days.
However, these limitations do not apply to a suit instituted by a holder of a
note for enforcement of payment of the principal of and premium, if any, or
interest on such note on or after the respective due dates expressed in the
note.
We are required to furnish to the trustee annually a statement as to the
performance by us of our obligations under the indenture and as to any default
in such performance.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture will cease to be of further effect as to all outstanding
notes, except as to:
- rights of registration of transfer and exchange and our right of optional
redemption;
- substitution of apparently mutilated, defaced, destroyed, lost or stolen
notes;
- rights of holders to receive payment of principal and interest on the
notes;
- rights, obligations and immunities of the trustee under the indenture;
and
- rights of the holders of the notes as beneficiaries of the indenture with
respect to any property deposited with the trustee payable to all or any
of them if:
- we will have paid or caused to be paid the principal of and interest
on the notes as and when they will have become due and payable; or
- all outstanding notes, except lost, stolen or destroyed notes which
have been replaced or paid, have been delivered to the trustee for
cancellation.
DEFEASANCE
At our option, if applicable:
(1) we will be discharged from any and all obligations in respect of
the outstanding notes; or
(2) we may omit to comply with various restrictive covenants, and this
omission shall not be deemed to be an Event of Default under the indenture
and the notes,
in either case (1) or (2) upon irrevocable deposit with the trustee, in trust,
of money and/or U.S. government obligations which will provide money in an
amount sufficient, in the opinion of a nationally recognized firm of independent
certified public accountants, to pay the principal of and premium, if any, and
each installment of interest (to the date of maturity or redemption date, as the
case may be), if any, on the outstanding notes.
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<PAGE> 96
With respect to clause (2), the obligations under the indenture other than
with respect to these covenants and the Events of Default other than the Events
of Default relating to these covenants above shall remain in full force and
effect. A trust may only be established if, among other things:
- with respect to clause (1), we have received from, or there has been
published by, the Internal Revenue Service a ruling, or there has been a
change in law, which in the opinion of counsel provides that holders of
the notes will not recognize gain or loss for U.S. federal income tax
purposes as a result of the deposit, defeasance and discharge and will be
subject to U.S. federal income tax on the same amount, in the same manner
and at the same times as would have been the case if the deposit,
defeasance and discharge had not occurred; or, with respect to clause
(2), we have delivered to the trustee an opinion of counsel to the effect
that the holders of the notes will not recognize gain or loss for U.S.
federal income tax purposes as a result of the deposit and defeasance and
will be subject to U.S. federal income tax on the same amount, in the
same manner and at the same times as would have been the case if the
deposit and defeasance had not occurred;
- the deposit, defeasance and discharge will not result in a breach or
violation of, or constitute a default under, any agreement or instrument
to which we or any Restricted Subsidiary are a party or by which we and
any Restricted Subsidiary are bound;
- no Event of Default or event that with the passing of time or the giving
of notice, or both, shall constitute an Event of Default, shall have
occurred and be continuing;
- we have delivered to the trustee an opinion of counsel to the effect that
the deposit shall not cause the trustee or the trust so created to be
subject to the Investment Company Act of 1940; and
- other customary conditions precedent are satisfied.
MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by us and the
trustee with the consent of the holders of a majority in aggregate principal
amount of the outstanding notes; provided, however, that no modification or
amendment may, without the consent of the holder of each outstanding note or
original note affected thereby:
- change the stated maturity of the principal of, or any installment of
interest on, any note;
- reduce the principal amount of, or premium or interest on, any note;
- change the place or currency of payment of principal of, or premium or
interest on, any note;
- impair the right to institute suit for the enforcement of any payment on
or with respect to any note;
- reduce the above-stated percentage of outstanding notes necessary to
modify or amend the indenture;
- reduce the percentage of aggregate principal amount of outstanding notes
necessary for waiver of compliance with provisions of the indenture or
for waiver of defaults;
- modify any provisions of the indenture relating to the modification and
amendment of the indenture or the waiver of past defaults or covenants,
except as otherwise specified; or
- following the mailing of any Offer to Purchase, modify any Offer to
Purchase for the notes required under the "Limitation on Asset Sales" and
the "Change of Control" covenants contained in the indenture in a manner
materially adverse to the holders thereof.
However, without the consent of any holder, we and the trustee may amend or
supplement the indenture or the notes to cure any ambiguity, defect or
inconsistency; provided that this action does not adversely affect the interests
of the holders of the notes in any material respect, to provide for the
assumption of our obligations to holders of notes in the case of a merger or
consolidation, to secure the notes, to add to our covenants for the benefits of
the holders or to comply with requirements of the
92
<PAGE> 97
Commission in order to effect or maintain the qualification of the indenture
under the Trust Indenture Act.
The holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all holders of notes, may waive compliance by us with
restrictive provisions of the indenture. Subject to rights of the trustee, as
provided in the indenture, the holders of a majority in aggregate principal
amount of the outstanding notes, on behalf of all holders of notes, may waive
any past default under the indenture, except a default in the payment of
principal, premium or interest or a default arising from failure to purchase any
note tendered pursuant to an Offer to Purchase.
GOVERNING LAW
The indenture and the notes are governed by the laws of the State of New
York.
THE TRUSTEE
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set forth
in the indenture. During the existence of an Event of Default, the trustee will
exercise such rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise as a prudent Person would exercise
under the circumstances in the conduct of such Persons own affairs.
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become our creditor, to obtain payment of claims in certain cases or to realize
on certain property received by it in respect of any such claim as security or
otherwise. The trustee is permitted to engage in other transactions with us or
any Affiliate; provided, however, that if it acquires any conflicting interest,
as defined in the indenture or in the Trust Indenture Act, it must eliminate the
conflict or resign.
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<PAGE> 98
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. PERSONS
The following is a summary of certain U.S. federal income tax
considerations for beneficial owners of the notes that are "non-U.S. persons"
under the Internal Revenue Code of 1986, as amended (the "Code"). Under the
Code, a "non-U.S. person" means a person that is not a U.S. person. A U.S.
person means a beneficial owner of a note that is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust that either is subject to the supervision of a court within the
United States and the control of one or more U.S. persons or has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
This summary is based on current law which is subject to change (perhaps
retroactively), is for general purposes only and should not be considered tax
advice. This summary does not represent a detailed description of the federal
income tax consequences applicable to you in light of your particular
circumstances or if you are subject to special treatment under the U.S. federal
income tax laws (for example, if you are a "controlled foreign corporation,"
"passive foreign investment company" or "foreign personal holding company" or a
corporation that accumulates earnings to avoid U.S. federal income tax). We
cannot assure you that a change in law will not alter significantly the tax
considerations that we describe in this summary.
YOU SHOULD CONSULT YOUR TAX ADVISOR CONCERNING THE PARTICULAR U.S. FEDERAL
INCOME TAX CONSEQUENCES TO YOU OF THE OWNERSHIP OF THE NOTES, AS WELL AS THE
CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
U.S. FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest on the notes provided that:
- you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the U.S. Treasury Regulations;
- you are not a controlled foreign corporation that is related to us
through stock ownership;
- you are not a bank whose receipt of interest on the notes is described in
section 881(c)(3)(A) of the Code; and
- either (a) you provide your name and address on an IRS Form W-8 or W-8BEN
(or successor form), and certify, under penalty of perjury, that you are
not a U.S. person or (b) a financial institution holding the notes on
your behalf certifies, under penalty of perjury, that it has received an
IRS Form W-8 or W-8BEN (or successor form) from the beneficial owner and
provides us with a copy.
If you cannot satisfy the requirements described above, payments of premium
and interest made to you will be subject to the 30% U.S. federal withholding
tax, unless you provide us with a properly executed (1) IRS Form 1001 or W-8BEN
(or successor form) claiming an exemption from or reduction in withholding under
the benefit of a tax treaty or (2) IRS Form 4224 or W-8ECI (or successor form)
stating that interest paid on the note is not subject to withholding tax because
it is effectively connected with your conduct of a trade or business in the
United States.
The 30% U.S. federal withholding tax will not apply to any gain or income
that you realize on the sale, exchange, retirement or other disposition of the
note.
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<PAGE> 99
U.S. FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and interest
on the notes is effectively connected with the conduct of that trade or business
(although exempt from the 30% withholding tax), you will be subject to U.S.
federal income tax on that interest on a net income basis in the same manner as
if you were a U.S. person as defined under the Code. In addition, if you are a
foreign corporation, you may be subject to a branch profits tax equal to 30% (or
lower applicable treaty rate) of your earnings and profits for the taxable year,
subject to adjustments, that are effectively connected with the conduct by you
of a trade or business in the United States. For this purpose, interest on the
notes will be included in earnings and profits.
Any gain or income realized on the disposition of a note generally will not
be subject to U.S. federal income tax unless (1) that gain or income is
effectively connected with the conduct of a trade or business in the United
States by you, (2) you are an individual who is present in the United States for
183 days or more in the taxable year of that disposition, and certain other
conditions are met or (3) you are subject to tax pursuant to provisions of the
U.S. federal tax law applicable to certain U.S. expatriates.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, you will not be subject to information reporting and backup
withholding with respect to payments that we make to you on the notes, provided
that we do not have actual knowledge that you are a U.S. person and we have
received from you the statement described above under "U.S. Federal Withholding
Tax."
In addition, you will not be subject to information reporting and backup
withholding with respect to the proceeds of the sale of a note within the United
States or conducted through certain U.S.-related financial intermediaries if the
payor receives the statement described above and does not have actual knowledge
that you are a U.S. person, or you otherwise establish an exemption.
U.S. Treasury Regulations were recently issued that generally modify the
information reporting and backup withholding rules applicable to certain
payments made after December 31, 2000. In general, the new U.S. Treasury
Regulations would not significantly alter the present rules discussed above,
except in certain special situations.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the IRS.
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<PAGE> 100
PLAN OF DISTRIBUTION
We will receive no proceeds in connection with the exchange offer.
Each broker-dealer that receives new notes for its own account in
connection with the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of new notes. This prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of new notes received in exchange for old notes where
the old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period ending upon the earlier of
(1) 180 days after the exchange offer has been completed or (2) the date on
which broker-dealers no longer own any Transfer Restricted Securities, we will
make available and provide promptly upon reasonable request this prospectus as
amended or supplemented, in a form meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale.
New notes received by broker-dealers for their own account in the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of these methods of resale, at market
prices prevailing at the time of resale, at prices related to prevailing market
prices or negotiated prices. Any resale may be made directly to purchasers or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of any
new notes.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. Therefore we file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Those reports, proxy
statements and other information may be obtained:
- At the Public Reference Room of the Securities and Exchange Commission,
Room 1024 -- Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549;
- At the public reference facilities at the Securities and Exchange
Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 or Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661;
- By writing to the Securities and Exchange Commission, Public Reference
Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
- At the offices of The Nasdaq Stock Market, Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006; or
- From the Internet site maintained by the Securities and Exchange
Commission at http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Securities Exchange Commission.
Some locations may charge prescribed or modest fees for copies.
LEGAL MATTERS
Certain legal matters relating to the issuance of the new notes will be
passed upon for Globix Corporation by Milberg Weiss Bershad Hynes & Lerach LLP,
New York, New York.
EXPERTS
The consolidated financial statements of Globix Corporation as of September
30, 1999 and 1998 and for each of the three years in the period ended September
30, 1999, included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and is included
herein in reliance upon the authority of said firm as experts in giving said
report.
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<PAGE> 101
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets -- As of September 30, 1999 and
September 30, 1998........................................ F-3
Consolidated Statements of Operations -- For the years ended
September 30, 1999, September 30, 1998 and September 30,
1997...................................................... F-4
Consolidated Statements of Changes in Stockholders'
Equity -- For the years ended September 30, 1999,
September 30, 1998 and September 30, 1997................. F-5
Consolidated Statements of Cash Flows -- For the years ended
September 30, 1999, September 30, 1998 and September 30,
1997...................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Balance Sheets -- As of December 31, 1999 and
September 30, 1999........................................ F-20
Consolidated Statements of Operations -- For the three
months ended December 31, 1999 and December 31, 1998...... F-21
Consolidated Statements of Cash Flows -- For the three
months ended December 31, 1999 and December 31, 1998...... F-22
Notes to Consolidated Financial Statements.................. F-23
</TABLE>
F-1
<PAGE> 102
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Globix Corporation:
We have audited the accompanying consolidated balance sheets of Globix
Corporation (a Delaware corporation) and Subsidiaries as of September 30, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Globix Corporation and
Subsidiaries as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
November 18, 1999
New York, New York
(except with respect to the matters discussed
in the second and third paragraphs of Note 12, as to
which the date is January 31, 2000)
F-2
<PAGE> 103
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1999 1998
----------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $101,471 $ 61,473
Marketable securities....................................... 9,941 14,638
Accounts receivable, net of allowance for doubtful accounts
of $707 and $410, respectively............................ 7,798 4,861
Inventories................................................. 1,282 392
Prepaid expenses and other current assets................... 2,649 1,699
Restricted cash............................................. 8,848 10,317
-------- --------
Total current assets................................... 131,989 93,380
Investments, restricted..................................... 36,191 50,163
Property, plant and equipment, net.......................... 122,653 30,872
Debt issuance costs, net of accumulated amortization of
$1,030 and $393, respectively............................. 5,583 6,214
Other assets................................................ 6,102 1,637
-------- --------
Total assets........................................... $302,518 $182,266
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital Lease obligations................................... $ 2,088 $ 2,398
Accounts payable............................................ 10,439 6,185
Accrued liabilities......................................... 9,579 271
Accrued interest............................................ 8,667 8,667
-------- --------
Total current liabilities.............................. 30,773 17,521
Capital Lease obligations, net of current portion........... 2,896 1,199
Senior Notes, net of unamortized discount of $1,891 and
$2,108, respectively...................................... 158,109 157,892
Other long term liabilities................................. 4,335 2,935
-------- --------
Total liabilities...................................... 196,113 179,547
Stockholders' Equity:
Preferred stock, $.01 par value; 500,000 shares authorized;
no shares issued and outstanding
Common stock, $.01 par value; 75,000,000 and 20,000,000
shares authorized; 33,300,020 and 16,560,464 shares issued
and outstanding, respectively............................. 333 166
Additional paid-in capital.................................. 155,423 17,122
Accumulated other comprehensive income...................... 10,279 1,676
Accumulated deficit......................................... (59,630) (16,245)
-------- --------
Total stockholders' equity............................. 106,405 2,719
-------- --------
Total liabilities and stockholders' equity.................. $302,518 $182,266
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 104
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1999 1998 1997
----------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Revenue............................................... $ 33,817 $ 20,595 $ 17,400
Operating costs and expenses:
Cost of revenues.................................... 22,184 13,322 13,699
Selling, general and administrative................. 36,495 10,696 6,036
Depreciation and amortization....................... 6,329 1,310 675
----------- ---------- ----------
Total operating costs and expenses.................... 65,008 25,328 20,410
----------- ---------- ----------
Loss from operations.................................. (31,191) (4,733) (3,010)
Interest and financing expense........................ (18,386) (8,376) (177)
Interest income....................................... 6,192 1,953 72
----------- ---------- ----------
Net loss.............................................. $ (43,385) $ (11,156) $ (3,115)
=========== ========== ==========
Basic and diluted loss per share...................... $ 1.73 $ 0.77 $ 0.25
----------- ---------- ----------
Weighted average common shares outstanding -- basic
and diluted......................................... 25,116,800 14,503,176 12,300,940
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 105
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL INCOME DEFICIT EQUITY
---------- ------ ---------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996... 12,332,840 $124 $ 7,940 $ -- $ (1,974) $ 6,090
Proceeds from Private
Placement, net.............. 1,600,000 16 1,967 -- -- 1,983
Issuance of common stock upon
exercise of options and
warrants, net............... 32,392 -- 56 -- -- 56
Correction of outstanding
shares...................... (171,432) (2) 2 -- -- --
Comprehensive Income (Loss):
Net loss.................... -- -- -- -- (3,115) --
Total Comprehensive Loss...... -- -- -- -- -- (3,115)
---------- ---- -------- ------- -------- --------
BALANCE, SEPTEMBER 30, 1997... 13,793,800 138 9,965 -- (5,089) 5,014
Warrants issued in connection
with senior note offering... -- -- 2,253 -- -- 2,253
Issuance of common stock upon
exercise of options and
warrants, net............... 2,766,664 28 904 -- -- 4,932
Comprehensive Income (Loss):
Net loss.................... -- -- -- -- (11,156) --
Unrealized holding gains.... -- -- -- 1,676 -- --
Total Comprehensive Loss...... -- -- -- -- -- (9,480)
---------- ---- -------- ------- -------- --------
BALANCE, SEPTEMBER 30, 1998... 16,560,464 166 17,122 1,676 (16,245) 2,719
Issuance of common stock in
conjunction with public
offering, net of offering
costs of $11,915............ 16,000,000 160 136,458 -- -- 136,618
Issuance of common stock upon
exercise of options and
warrants, net............... 739,556 7 1,843 -- -- 1,850
Comprehensive Income (Loss):
Net loss.................... -- -- -- -- (43,385) --
Unrealized holding gains.... -- -- -- 8,523 -- --
Foreign Currency translation
adjustment............... -- -- -- 80 -- --
Total Comprehensive Loss...... -- -- -- -- -- (34,782)
---------- ---- -------- ------- -------- --------
BALANCE, SEPTEMBER 30, 1999... 33,300,020 $333 $155,423 $10,279 $(59,630) $106,405
========== ==== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 106
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
---------- ---------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(43,385) $(11,156) $(3,115)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................... 6,329 1,310 675
Amortization of debt discount and issuance costs............ 849 538 --
Changes in operating assets and liabilities:
Accounts receivable......................................... (2,937) (1,602) (1,412)
Inventories................................................. (890) 96 271
Prepaid expenses and other current assets................... (950) (1,571) 31
Other assets................................................ (766) (207) 48
Accounts payable............................................ 3,911 4,175 736
Accrued liabilities......................................... 904 (278) 234
Accrued interest............................................ -- 8,667 --
Other....................................................... 38 143 --
-------- -------- -------
Net cash provided by (used in) operating activities......... (36,897) 115 (2,532)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in restricted cash............................... -- (10,317) --
Use of restricted cash...................................... 1,469 -- --
Investment in marketable securities......................... -- (12,962) --
Investment in long-term restricted investments.............. (6,247) (49,838) --
Proceeds from sale of marketable securities................. 14,638 -- --
Use of long-term restricted investments..................... 20,800 -- --
Investment in NetSat Express................................ (5,000) -- --
Investment in Cybernet Data Systems (Edgar Online).......... (1,000) (1,000) --
Purchases of property, plant and equipment, net of landlord
reimbursement in 1997..................................... (83,434) (23,270) (1,542)
-------- -------- -------
Net cash used in investing activities....................... (58,774) (97,387) (1,542)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net................. 136,618 -- --
Proceeds from senior note offering, net of offering expenses
of $6,608................................................. -- 153,392 --
Net proceeds from (repayments of) short term borrowings..... -- (2,001) 2,001
Shareholder loan............................................ 300 (155) (145)
Proceeds from notes payable for equipment refinancing....... -- -- 873
Repayments of notes payable................................. (3,179) (424) (196)
Proceeds from private placement............................. -- 600 1,544
Proceeds from exercise of stock options and warrants, net... 1,850 4,932 56
-------- -------- -------
Net cash provided by financing activities................... 135,589 156,344 4,133
-------- -------- -------
Effects of exchange rate changes on cash and cash
equivalents............................................... 80 -- --
Net increase in cash and cash equivalents................... 39,998 59,072 59
Cash and cash equivalents, beginning of year................ 61,473 2,401 2,342
-------- -------- -------
Cash and cash equivalents, ending of year................... $101,471 $ 61,473 $ 2,401
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 21,256 $ 223 $ 166
Cash paid for income taxes.................................. $ 38 $ 51 $ 28
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations.......... $ 4,566 $ 1,113 $ 540
Capital expenditures included in accounts payable, notes
payable and other long term liabilities................... $ 10,110 $ 6,702 --
Proceeds receivable associated with private placement....... -- -- $ 600
Issuance of common stock in connection with private
placement................................................. -- -- $ 100
Warrants issued in connection with Senior Notes............. -- $ 2,253 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 107
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Globix Corporation and Subsidiaries ("Globix" or the "Company") was
originally incorporated in New York in 1989 as NAFT International Ltd. In July
1994, PFM Technologies Corporation, a newly formed affiliate of NAFT, acquired
NAFT and its affiliated corporations in a tax-free exchange of common stock. The
Company reincorporated in Delaware in 1995 under the name Bell Technology Group
Ltd. The Company changed its name to Globix Corporation on June 1, 1998.
The Company is a leading full-service provider of sophisticated Internet
solutions to businesses. The Company's solutions include secure and
fault-tolerant Internet data centers, high performance network connectivity to
the Internet, hosting and support for complex Internet-based applications. These
three major elements of the total Internet solution combine to provide customers
with the ability to create, operate and scale their increasingly complex
Internet operations in a cost efficient manner. Customers of Globix primarily
use these products and services to maintain complex computer equipment in a
secure fault-tolerant environment with connectivity to a high-speed,
high-capacity, direct link to the Internet and support complex Internet
applications. The Company currently offers its products and services from
SuperPOP facilities in New York City, London and Santa Clara, California.
Currently Globix has agreements for over 550 peering connections, making it one
of the largest peering Internet networks. The Company operates in two segments:
the "Internet Division" and the "Server Sales and Integration Division." The
Internet Division provides dedicated Internet access, hosting, co-location and
application services (such as electronic commerce, streaming media, network
security and web development). The Server Sales and Integration Division
provides Internet-related hardware and software, systems and network
integration.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Revenue Recognition
Revenues consist primarily of dedicated Internet access fees, hosting and
co-location fees, sales of third-party hardware and software, fees from systems
and network integration, sales of systems administration application services
(such as electronic commerce, streaming media, network security, and fees from
instructor-led corporate training).
Monthly service revenue related to Internet access, hosting and co-location
is recognized over the period services are provided. Service and equipment
installation revenue is recognized at completion of installation and upon
commencement of service. Revenue derived from application services are
recognized as the project progresses. Projects are generally completed within a
three-month period. Payments received in advance of providing services are
deferred until the period such services are provided. Equipment sales and
installation revenue is recognized when installation is completed.
F-7
<PAGE> 108
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cost of Revenues
Cost of revenues in the Company's Internet Division consists primarily of
telecommunications costs and direct labor costs for systems administration and
application services. For the Server Sales and Integration Division, the cost of
revenues primarily consists of acquisition costs of third-party hardware and
software.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents.
Investments
Investments in marketable securities are reported at fair value. Unrealized
gains and losses from those securities, which are classified as
available-for-sale, are reported as "unrealized holding gains and losses" as a
separate component of stockholders' equity. At September 30, 1999 marketable
securities have a cost basis of $2.0 million.
Investments in less than twenty percent owned businesses are accounted for
under the cost method and are included in other assets in the consolidated
balance sheets.
Inventories
Inventories consist of computer hardware and software, parts and related
items. Inventories are carried at the lower of cost or market determined by the
first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation or amortization computed on the straight-line method. Buildings and
building improvements are depreciated over their estimated useful life of forty
years. Computer hardware and software, network equipment and furniture and
equipment are depreciated over their estimated useful lives, generally five
years. Leasehold improvements are amortized over the term of the lease or life
of the asset, whichever is shorter.
Long-Lived Assets
The Company reviews the carrying amount of long lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Measurement of any impairment would include a comparison
of estimated future operating cash flows anticipated to be generated during the
remaining life of the asset to the net carrying value of the asset.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have been
translated in accordance with Statement of Financial Accounting Standard No. 52,
"Foreign Currency Translation". The subsidiaries' assets and liabilities are
translated into U.S. Dollars at the year-end rate of exchange. Income and
expense items are translated at the average exchange rate for the year. The
resulting foreign currency translation adjustment is included in stockholders'
equity as a component of accumulated other comprehensive income. Transaction
gains and losses are recorded in the consolidated statement of operations.
F-8
<PAGE> 109
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income taxes are provided for differences between financial
statement and income tax bases of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse. The
Company provides a valuation allowance on net deferred tax assets when it is
more likely than not that such assets will not be realized.
Stock-Based Compensation
As permitted by Financial Accounting Standards Board Statement No. 123,
"Accounting or Stock-Based Compensation" ("SFAS No. 123"), which establishes a
fair value based method of accounting for stock-based compensation plans, the
Company has elected to follow Accounting Principal Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") for recognizing
stock-based compensation expense for financial statement purposes. Under APB No.
25, the Company applies the intrinsic value method of accounting and therefore
does not recognize compensation expense for options granted, because options are
only granted at a price equal to market value on the day of grant. For companies
that choose to continue applying the intrinsic value method, SFAS No. 123
mandates certain pro forma disclosures as if the fair value method had been
utilized. See Note 6 for the additional disclosures required under SFAS No. 123.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), which requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. The Company has adopted this
statement in 1999 as the Company has unrealized gains and losses on marketable
securities classified as available for sale and has foreign currency translation
adjustments from its operations in foreign countries. The Company has restated
1998 and 1997 amounts to present information on a comparable basis.
Loss Per Share
Basic loss per share is calculated by dividing loss attributable to common
shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted loss per share is calculated by dividing
loss attributable to common shareholders by the weighted average number of
common shares outstanding adjusted for potentially dilutive securities. Diluted
loss per share has not been presented since the inclusion of outstanding options
would be antidilutive.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
restricted cash and investments, marketable securities and accounts receivable.
The Company maintains cash and cash equivalents, restricted cash and investments
with various major financial institutions which invest primarily in U.S.
Government instruments, high quality corporate obligations, certificates of
deposit and commercial paper. The Company believes that concentrations of credit
risk with respect to trade accounts receivable are limited due to the large
number and geographic dispersion of customers comprising the Company's customer
base.
Three vendors comprised approximately seventy-eight percent (36%, 22%, and
20% individually) of the Company's inventory purchases during the year ended
September 30, 1999. One vendor comprised approximately twenty-one percent during
the year ended September 30, 1998. If such vendors cease to
F-9
<PAGE> 110
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
supply the Company, management is confident it can procure comparable products
at similar costs elsewhere.
Fair Value of Financial Instruments
For cash and cash equivalents, restricted cash and investments and
marketable securities, the carrying amount approximates fair value. The fair
value of the Company's long-term debt, including current portions, is determined
based on market prices for similar debt instruments or on the current rates
offered to the Company for debt with similar maturities.
Segment Disclosures
In 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which changes the way
public companies report information about segments. SFAS No. 131, which is based
on the management approach to segment reporting, includes requirement to report
selected segment information quarterly, and entity wide disclosures about
products and services, major customers and geographic data. The Company has
provided the information required by SFAS No. 131 in Note 10.
Reclassifications
Certain prior year information has been reclassified to conform with fiscal
1999 presentation.
Recent Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS No. 133"), as amended, which is
effective for all quarters of the fiscal year beginning after June 15, 2000.
This Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging securities. Currently, as the Company has no
derivative instruments, the adoption of SFAS No. 133 would have no impact on the
Company's financial condition or results of operations.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Land.................................................... $ 1,997 $ 1,997
Building and building improvements...................... 51,828 19,075
Leasehold improvements.................................. 25,917 3,554
Computer hardware and software and network equipment.... 46,384 7,907
Furniture and equipment................................. 5,266 749
-------- -------
131,392 33,282
Less: accumulated depreciation and amortization......... (8,739) (2,410)
-------- -------
Property, plant and equipment, net...................... $122,653 $30,872
======== =======
</TABLE>
Included in property, plant and equipment at September 30, 1999 and 1998,
is $7.1 million and $2.5 million, respectively, of assets held under capital
lease obligations. Also, included in building and leasehold improvements is $4.9
million and $1.1 million of capitalized interest, as of September 30, 1999 and
1998, respectively, related to the construction of the SuperPOP facilities in
New York, Santa Clara and London.
F-10
<PAGE> 111
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company owns the land and building located at 139 Centre Street, New
York, New York. The nine-story building with 160,000 square feet of floor space
houses the Company's corporate headquarters and state of the art SuperPOP
facility. A former owner of the right to purchase the Centre Street property is
entitled to additional consideration if Globix sells the property. Such amount
will be equal to the greater of (a) $1.0 million (subject to increase after June
1, 2018 by ten percent and an additional ten percent every fifth year
thereafter), or (b) ten percent of the gross sales price of the property if such
sales price is greater than $17.5 million.
3. OTHER ASSETS
Other assets include the Company's investment in NetSat Express, Inc.
("NetSat Express"), a subsidiary of Globecomm System Inc., security deposits and
other assets. In August 1999, the Company purchased for $5.0 million, 12.5% of
the outstanding securities of NetSat Express. NetSat Express is a provider of
satellite-based Internet access services, digital media distribution services,
and integrated data, voice and video communications services. In addition, the
Company and NetSat Express entered in a strategic agreement pursuant to which
NetSat Express will acquire ISP access and virtual private network services from
the Company, while the Company will utilize NetSat Express' IP based satellite
services for connection of certain foreign peering points to the Internet.
4. SENIOR NOTES
In April 1998, the Company completed a $160.0 million debt financing (the
"Senior Notes") consisting of 160,000 units, each unit consisting of a note in
the principal amount of one thousand dollars and one warrant to purchase 14.08
shares of common stock (total of 2,252,800 shares of common stock) at a purchase
price of $3.51 per share. The Senior Notes will mature on May 1, 2005. Interest
on the notes accrues at a rate of 13.0% per annum and is payable semi-annually
in arrears on May 1 and November 1 of each year, commencing November 1, 1998.
Globix deposited $57.0 million with an escrow agent at closing, such amount,
with interest is sufficient to pay, when due, the first six interest payments
under the Senior Notes. The Senior Notes are collateralized by a first priority
security interest in the escrow account. The Senior Notes are unsecured
obligations of the Company and rank pari passu in right of payment with all
existing and future unsecured and unsubordinated indebtedness and rank senior in
right of payment to any future subordinated indebtedness. In connection with the
warrants issued with the Senior Notes, the Company has assigned an original
issue discount of approximately $2.3 million. In addition, the Company incurred
costs associated with the offering of approximately $6.6 million. These amounts
are being amortized over seven years using the effective interest method.
As of September 30, 1999, the fair value of the Company's Senior Notes was
$139.2 million based upon quotes from securities dealers.
5. STOCKHOLDERS' EQUITY
Public Equity Offering
In March 1999, the Company completed a public offering of 16,000,000 shares
of the Company's common stock. The Company received proceeds, net of expenses,
from the public offering of approximately $136.6 million. In addition, the
Company received proceeds of $0.9 million resulting from the exercise of 80,790
warrants to purchase 323,160 shares of common stock.
Initial Public Offering
In January 1996, the Company sold, in an initial public offering, 4,600,000
shares of Common Stock at an initial offering price of $1.75 per share, and
575,000 Redeemable Purchase Warrants (the "IPO
F-11
<PAGE> 112
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrants") for $0.10 per warrant. Each IPO Warrant entitles the holder to
purchase 4 shares of the Company's common stock for $1.93 per share. The IPO
Warrants are redeemable by the Company at $0.10 per warrant at any time after
January 24, 1997 if certain conditions are met. The net proceeds which the
Company received from the public offering amounted to approximately $6.6
million.
In March 1996, the underwriter of the initial public offering exercised its
over-allotment option to purchase 518,568 common shares from the Company for
$1.75 per share. The net proceeds amounted to approximately $0.8 million.
In June 1998, the Company called for redemption of the IPO Warrants. Prior
to the redemption date of July 8, 1998, 581,472 of the 592,055 then outstanding
IPO Warrants were exercised at an exercise price of $1.86 per common share. The
remaining 10,483 IPO Warrants were redeemed by the Company at a price of $0.10
per warrant. The net proceeds recognized by the Company from the exercise of IPO
warrants amounted to approximately $4.3 million.
Private Placement
In September 1997, the Company sold 1,530,436 shares of its common stock in
a private transaction for net proceeds of $2.1 million. Form SB-2 was filed with
the Securities and Exchange Commission with respect to these shares on November
6, 1997 and became effective on November 20, 1997. A fee with respect to the
sale of these shares of $0.1 million in cash and 69,564 shares of common stock
was paid to the investors and were offset against the proceeds of the issuance.
Amended Certificate of Incorporation
On April 23, 1999, the shareholders of the Company voted to amend the
Company's certificate of incorporation to increase the Company's authorized
common stock to 75,000,000 shares.
6. EMPLOYEE BENEFIT PLANS
Stock Option Plans
In April 1999, the Company's stockholders approved the 1999 Stock Option
Plan (the "1999 Option Plan"), which provides for the grant of stock options to
purchase up to 6,000,000 shares of common stock to any employee, non-employee
director, or consultant at the Board's discretion. Under the 1999 Option Plan,
these options may not be exercised after ten years from the date of grant.
Options issued to employees are exercisable ratably over a five-year period.
In April 1998, the Company's stockholders approved the 1998 Stock Option
Plan (the "1998 Option Plan"), which provides for the grant of stock options to
purchase up to 4,800,000 shares of common stock to any employee, non-employee
director, or consultant at the Board's discretion. Under the 1998 Option Plan,
these options may not be exercised after ten years from the date of grant.
Options issued to employees are exercisable ratably over a five-year period.
Under the 1999 Option Plan and 1998 Option Plan, options are granted each
year to non-employee directors on the first day of the Company's fiscal year or
on the first day of the term as director at a purchase price equal to the fair
market value on the date of grant. In addition, the non-employee director stock
options shall be exercisable in full twelve months after the date of grant
unless determined otherwise by the stock option committee.
In 1995, the Company's stockholders approved the 1995 Stock Option Plan
(the "1995 Option Plan"), which reserved 1,440,000 shares of common stock for
issuance under the 1995 Option Plan. Under the 1995 Option Plan, the term of the
options issued are determined by the stock option committee and
F-12
<PAGE> 113
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
range from five to ten years from the date of the grant. Options issued to
directors are immediately exercisable and options issued to employees are
exercisable ratably over a three year period.
There were 5,313,476 options available for future grant at September 30,
1999.
Stock Option Repricing
On September 30, 1997, 1,000,256 options previously issued to employees and
directors with a weighted average exercise price of $2.08 were canceled and
reissued at $1.53, the fair market value of the Company's common stock on the
date of reissuance. This revaluation did not alter or amend any other provision
of the optionee's original option agreement, including the vesting period and
option term.
Fair Value of Stock Options
For disclosure purposes under SFAS No. 123, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option valuation
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
<S> <C> <C> <C>
Expected life (in years).................................... 6.0 6.0 6.0
Risk-free interest rate..................................... 5.4% 5.6% 6.2%
Volatility.................................................. 94.0% 111.0% 42.0%
Dividend yield.............................................. 0.0% 0.0% 0.0%
</TABLE>
Utilizing these assumptions, the weighted average fair value of options
granted is $6.49, $1.32 and $0.94 for the years ended September 30, 1999, 1998
and 1997, respectively.
Under the above model, the total value of stock options granted would be
amortized on a pro forma basis over the option-vesting period. Had the Company
determined compensation expense for these stock options under the fair value
method of SFAS No. 123, the Company's net loss and loss per share would have
been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Pro forma net loss.................................. $(76,305) $(13,394) $(3,308)
Pro forma basic and diluted loss per share.......... $ (3.04) $ (0.92) $ (0.27)
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The effects of
applying SFAS No. 123 in this pro forma disclosure are not indicative of future
amounts as additional stock option awards are anticipated in future years.
F-13
<PAGE> 114
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary Stock Option Activity
The following table summarizes stock option information with respect to all
stock options for the three years ended September 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE ($)
---------- ------------------
<S> <C> <C>
Options outstanding, September 30, 1996................. 810,920 1.76
Granted............................................... 1,563,588 1.85
Canceled.............................................. (1,136,260) 2.10
Exercised............................................. (31,992) 1.75
---------- ------
Options outstanding, September 30, 1997................. 1,206,256 1.53
Granted............................................... 2,729,500 1.56
Canceled.............................................. (248,072) 1.48
Exercised............................................. (25,264) 1.53
---------- ------
Options outstanding, September 30, 1998................. 3,662,420 1.60
Granted............................................... 7,842,576 8.24
Canceled.............................................. (539,148) 3.62
Exercised............................................. (256,272) 1.53
---------- ------
Options outstanding, September 30, 1999................. 10,709,576 6.35
========== ======
</TABLE>
The following table summarizes information about the outstanding and
exercisable options at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------
NUMBER OF WEIGHTED NUMBER OF
OPTIONS AVERAGE WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, EXERCISE
RANGE OF EXERCISE PRICES 1999 LIFE PRICE($) 1999 PRICE($)
- ------------------------ -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$1.25 - $2.25 3,904,560 8.12 1.51 2,531,404 1.57
$2.63 - $3.84 906,036 9.12 3.75 48,332 3.06
$6.28 - $8.47 115,600 9.57 7.23 -- --
$9.25 - $9.25 4,096,580 9.48 9.25 4,096,580 9.25
$9.50 - $12.02 1,686,800 9.83 11.69 -- --
---------- ---------
10,709,576 6,676,316
========== =========
</TABLE>
401(k) Plan
The Company offers its qualified employees the opportunity to participate
in a defined contribution retirement plan qualifying under the provisions of
Section 401(k) of the Internal Revenue Code. Each employee is eligible to
contribute, on a tax deferred basis, a portion of annual earnings not to exceed
certain federal income tax limitations. The Company does not match employee
contributions and therefore does not incur any expense related to the 401(k)
plan.
7. REVOLVING CREDIT AGREEMENTS AND CAPITAL LEASE OBLIGATIONS
Revolving Credit Agreements
The Company has a Revolving Credit Agreement with a bank (the "Revolving
Line") which may be used to finance its inventory up to a maximum of $1.0
million. The credit available under the Revolving
F-14
<PAGE> 115
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Line is based upon the balance of collateral available, which is eighty percent
of current accounts receivable and fifty percent of inventory. As of September
30, 1999, the Company had available credit of $1.0 million of which $176 is
outstanding and is included in accounts payable in the consolidated balance
sheets.
The Company also maintains a $1.0 million credit line from Cisco Systems
Capital Corporation ("CSC") to lease CSC products and associated peripherals.
The terms of this line, which was entered into in December 1997, provided for
180 days of borrowing and a maximum borrowing limit of $1.0 million. However,
CSC has informally permitted the Company to continue to borrow under this line
and to exceed the stated $1.0 million limit. Amounts borrowed under the line are
to be repaid over a 36-month period with the Company having the option of
purchasing the equipment for $1.00 at the end of the lease term. As of September
30, 1999, approximately $3.9 million was outstanding under this credit line and
is included in the capital lease obligations in the table below.
Capital Lease Obligations
Future minimum lease payments due under capital leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30 AMOUNT
- ------------------------ ------
<S> <C>
2000................................................ $2,447
2001................................................ 2,113
2002................................................ 775
2003................................................ 147
2004................................................ 139
Less: Amount representing interest.................. (637)
------
Present value of net minimum lease payments......... $4,984
======
</TABLE>
8. COMMITMENTS
Leases
The Company has minimum monthly usage levels of data and voice
communications with certain of its telecommunications vendors. The Company also
leases certain of its SuperPOP facilities and various office furniture and
equipment under non-cancelable operating leases expiring in various years
through 2014. Total rent expense for all operating leases for the year ended
September 30, 1999, 1998 and 1997 was $1,277, $560 and $549, respectively.
Future minimum payments due under these operating leases and
telecommunications vendor usage commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30 TELECOM. LEASES
- ------------------------ -------- -------
<S> <C> <C>
2000..................................... $ 5,196 $ 3,561
2001..................................... 5,317 3,570
2002..................................... 5,317 3,579
2003..................................... 5,317 3,595
2004..................................... 5,317 3,636
Thereafter............................... 14,842 31,950
------- -------
Total.................................... $41,306 $49,891
======= =======
</TABLE>
F-15
<PAGE> 116
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Qwest IRU Agreement
In October 1998, the Company entered into an Indefeasible Right of Use
("IRU") agreement with Qwest Communications Corporation ("Qwest"), under which
the Company has the exclusive right to MacroCapacity fiber network for a twenty
year period. The Company will initially have the right to use 6,500 route miles
of OC-3 fiber capacity coast-to-coast in the United States and a DS-3 fiber link
from the United States to the United Kingdom. The Company is currently committed
to Qwest for a fee of approximately $9.2 million of which it paid approximately
$0.9 million at contract signing. The balance is recorded in accrued liabilities
in the consolidated balance sheets. In addition, the Company has the right to
increase its capacity on the Qwest network at additional cost to the Company.
The Company is also liable for monthly operating and maintenance charges. The
Company began to amortize the total contract value over the twenty year term of
the agreement during the fourth quarter of 1999.
Employment Agreement
Effective June 1, 1998, the Company entered into a seven year employment
agreement, with an Officer and Director providing for a base salary of $0.35
million per year, increasing annually at the rate of five percent starting
October 1, 1999. In addition, the individual will receive an annual bonus equal
to ten thousand times the increase, if any, of the fair market value per share
of the Company's common stock measured during the twelve month period ending on
June 30 of each year of the agreement, commencing with the year beginning July
1, 1998. During the year ended September 30, 1999 the individual received a
bonus of approximately $0.33 million under this provision of the employment
agreement. The employment agreement also provides that he may require the
Company to lend him up to a total of $155. Any loan taken thereunder will mature
five years after the date made and bear interest at the rate of eight percent
per annum. However, the interest accruing during the first two years is not
payable until the end of such two-year period. At September 30, 1999 and 1998
the Officer had outstanding borrowings of $0 and $155 under such loan
arrangement.
Pursuant to the terms of the employment agreement, on September 30 of each
fiscal year, the individual is also entitled to an annual stock option to
purchase shares of common stock equal to twenty-five percent of any increase in
the total shares of common stock outstanding during the prior twelve months as a
result of equity offerings or acquisitions. The exercise price of the option is
equal to the market price of common stock on the date of grant and twenty-five
percent is exercisable immediately. On October 1, 1998 the individual was
granted an option to purchase 691,664 shares of common stock under this
provision of the employment agreement. On March 2, 1999 the individual agreed to
surrender this right pursuant to an amendment to the employment agreement. Under
the terms of the amendment, in lieu of this right, the individual received a
one-time option to purchase an amount of shares of common stock equal to
twenty-five percent of the difference between the number of shares outstanding
immediately after the closing of March 26, 1999 public offering and the number
of shares outstanding as of October 1, 1998. This provision of the amended
employment agreement yielded the individual an option to purchase 4,096,580
shares of common stock. The term of the option is ten years from the date of
grant.
F-16
<PAGE> 117
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Tax depreciation and amortization in excess of book
depreciation and amortization...................... $ (348) $ (418) $ (265)
Net operating loss carryforwards..................... 23,375 7,508 1,908
Allowance for doubtful accounts...................... 283 242 255
Deferred Rent........................................ 149 152 81
Valuation allowance.................................. (23,459) (7,484) (1,979)
-------- ------- -------
Total net deferred tax liabilities................... $ -- $ -- $ --
======== ======= =======
</TABLE>
The provision for income taxes for the years ended September 30, 1999, 1998
and 1997 differs from the amount computed by applying the federal statutory rate
due to the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate........................... (34)% (34)% (34)%
State and local taxes, net of federal benefit............... (11) (11) (11)
Valuation allowance......................................... 45 45 45
---- ---- ----
Effective income tax rate................................... 0% 0% 0%
==== ==== ====
</TABLE>
The Company is in an accumulated loss position for both financial reporting
and income tax purposes. The Company has U.S. Federal income tax loss
carryforwards of approximately $55.9 million at September 30, 1999. These income
tax loss carryforwards expire between 2011 and 2019. Pursuant to Section 382 of
the Internal Revenue Code, the usage of these net operating loss carryforwards
may be partially limited due to changes in ownership that have occurred. The
Company has not yet determined the impact, if any, that changes in ownership
have had on net operating loss carryforwards. As of September 30, 1999, the
Company also has net operating loss carryforwards of approximately $3.3 million
from its United Kingdom Subsidiaries which will expire under U.K. tax rules. For
financial reporting purposes, income tax benefits through September 30, 1999 are
fully offset by a valuation allowance due to the uncertainty of the Company's
ability to realize income tax benefits by generating taxable income in the
future.
10. SEGMENT INFORMATION
During fiscal 1999, the Company adopted SFAS No. 131. SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for disclosures about products and services and geographic
areas. Operating segments are components of an enterprise for which separate
financial information is available and which is evaluated regularly by the
Company's chief operating decision maker, or decision making group, in deciding
how to allocate resources and assess performance.
Operating segments are managed separately and represent strategic business
units that offer different products and serve different markets.
F-17
<PAGE> 118
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's activities fall within two operating segments: the Internet
Division and the Server Sales and Integration Division. The following table sets
forth industry segment information for the years ended September 30, 1999, 1998
and 1997:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Internet............................................ $ 13,033 $ 6,448 $ 2,414
Server sales and integration........................ 20,784 14,147 14,986
-------- -------- -------
Consolidated........................................ $ 33,817 $ 20,595 $17,400
======== ======== =======
Operating income (loss):
Internet............................................ $(13,001) $ 1,146 $ (84)
Server sales and integration........................ 1,019 721 (379)
Corporate........................................... (19,209) (6,600) (2,547)
-------- -------- -------
Consolidated........................................ $(31,191) $ (4,733) $(3,010)
======== ======== =======
Identifiable assets:
Internet............................................ $ 57,503 $ 7,808 $ 2,105
Server sales and integration........................ 6,074 3,732 5,782
Corporate........................................... 238,941 170,726 3,138
-------- -------- -------
Consolidated........................................ $302,518 $182,266 $11,025
======== ======== =======
</TABLE>
The following table sets forth geographic segment information for the years
ended September 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
REVENUES:
United States....................................... $ 33,674 $ 20,595 $17,400
Europe.............................................. 143 -- --
-------- -------- -------
Consolidated........................................ $ 33,817 $ 20,595 $17,400
======== ======== =======
Operating income (loss):
United States....................................... $(27,590) $ (4,733) (3,010)
Europe.............................................. (3,601) -- --
-------- -------- -------
Consolidated........................................ $(31,191) $ (4,733) $(3,010)
======== ======== =======
IDENTIFIABLE ASSETS:
United States....................................... $282,479 $179,494 $11,025
Europe.............................................. 20,039 2,772 --
-------- -------- -------
Consolidated........................................ $302,518 $182,266 $11,025
======== ======== =======
</TABLE>
11. RELATED PARTY TRANSACTIONS
The Company utilizes an entity controlled by a Director of the Company as
its agent to place the Company's advertisements in various print publications.
Amounts paid to this entity for the year ended September 30, 1999 and 1998 were
approximately $1.5 million and $0.5 million, respectively. A substantial
F-18
<PAGE> 119
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
portion of these amounts constitute the pass-through of amounts payable to the
publishing companies for the Company's advertisements.
12. SUBSEQUENT EVENTS
On November 8, 1999 the Company announced an agreement to issue $80.0
million in new Series A Convertible Preferred Stock to affiliates of Hicks,
Muse, Tate & Furst Incorporated ("Hicks Muse") to expand the build-out of
SuperPOPs and other facilities. The preferred stock is convertible into common
stock at $10.00 per share at any time and cannot be called for redemption for
five years. Under the agreement, the preferred stock is subject to mandatory
redemption in 2014 and pays an annual dividend rate of 7.5% payable quarterly in
cash or additional preferred stock at the option of the Company. Upon closing,
Hicks Muse will own approximately 19.0% of the Company's outstanding common
stock on an as converted basis.
On December 10, 1999, the Company announced a two-for-one stock split
effective December 30, 1999. Shareholders' equity has been restated to give
retroactive recognition to the stock split for all periods presented by
reclassifying from additional paid-in capital to common stock the par value of
the additional shares arising from the split. In addition, all references to
number of shares, per share amounts and stock option data have been restated to
reflect the stock split.
On January 10, 2000, the Company announced a two-for-one stock split
effective January 31, 2000. Shareholders' equity has been restated to give
retroactive recognition to the stock split for all periods presented by
reclassifying from additional paid-in capital to common stock the par value of
the additional shares arising from the split. In addition, all references to
number of shares, per share amounts and stock option data have been restated to
reflect the stock split.
F-19
<PAGE> 120
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $101,471 $155,093
Marketable securities....................................... 9,941 9,858
Accounts receivable, net of allowance for doubtful accounts
of $707 and $671, respectively............................ 7,798 9,972
Inventories................................................. 1,282 1,393
Prepaid expenses and other current assets................... 2,649 2,832
Restricted cash............................................. 8,848 5,516
-------- --------
Total current assets................................... 131,989 184,664
Investments, restricted..................................... 36,191 32,161
Property, plant and equipment, net.......................... 122,653 129,327
Debt issuance costs, net of accumulated amortization of
$1,030 and $1,198, respectively........................... 5,583 5,415
Other assets................................................ 6,102 6,150
-------- --------
Total assets........................................... $302,518 $357,717
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital Lease obligations................................... $ 2,088 $ 2,044
Accounts payable............................................ 10,439 14,667
Accrued liabilities......................................... 9,579 10,260
Accrued interest............................................ 8,667 3,467
-------- --------
Total current liabilities.............................. 30,773 30,438
Capital Lease obligations, net of current portion........... 2,896 2,316
Senior Notes, net of unamortized discount of $1,891 and
$1,834, respectively...................................... 158,109 158,166
Other long term liabilities................................. 4,335 4,339
-------- --------
Total liabilities...................................... 196,113 195,259
Redeemable Convertible Preferred Stock...................... 76,281
Stockholders' Equity:
Common stock, $.01 par value; 75,000,000 shares authorized;
33,300,020 and 33,921,708 shares issued and outstanding,
respectively.............................................. 333 339
Additional paid-in capital.................................. 155,423 155,969
Accumulated other comprehensive income...................... 10,279 10,310
Accumulated deficit......................................... (59,630) (80,441)
-------- --------
Total stockholders' equity............................. 106,405 86,177
-------- --------
Total liabilities and Stockholders' Equity.................. $302,518 $357,717
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 121
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Revenue..................................................... $ 5,929 $ 16,145
Operating costs and expenses:
Cost of revenues.......................................... 3,702 10,056
Selling, general and administrative....................... 5,566 19,695
Depreciation and amortization............................. 507 3,357
----------- -----------
Total operating costs and expenses.......................... 9,775 33,108
----------- -----------
Loss from operations........................................ (3,846) (16,963)
Interest and financing expense.............................. (4,917) (5,469)
Interest income............................................. 944 1,621
----------- -----------
Net loss.................................................... $ (7,819) $ (20,811)
Basic and diluted net loss per share........................ $ (0.47) $ (0.64)
=========== ===========
Weighted average common shares outstanding.................. 16,560,464 33,557,678
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 122
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------
1998 1999
--------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE AND
PER SHARE DATA)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $ (7,819) $(20,811)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 507 3,357
Amortization of debt discount and issuance costs............ 336 225
Changes in operating assets and liabilities:
Accounts receivable......................................... (481) (2,174)
Inventories................................................. 65 (111)
Prepaid expenses and other current assets................... (934) (183)
Other assets................................................ (221) (48)
Accounts payable............................................ 5,644 4,228
Accrued liabilities......................................... 274 681
Accrued interest............................................ (5,200) (5,200)
Other....................................................... (38) 4
-------- --------
Net cash used in operating activities....................... (7,867) (20,032)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Use of restricted cash...................................... 5,200 5,200
Investment in long-term restricted investments.............. -- (2,711)
Proceeds from sale of marketable securities................. 776 --
Use of long-term restricted investments..................... 4,807 5,200
Purchases of property, plant and equipment.................. (22,320) (10,031)
-------- --------
Net cash used in investing activities....................... (11,537) (2,342)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of redeemable convertible preferred
stock, net................................................ -- 75,750
Repayments of notes payable................................. (287) (624)
Proceeds from notes payable................................. 1,328 --
Proceeds from exercise of stock options and warrants, net... -- 1,082
-------- --------
Net cash provided by financing activities................... 1,041 76,208
-------- --------
Effects of exchange rate changes on cash and cash
equivalents............................................... -- (212)
Net increase (decrease) in cash and cash equivalents........ (18,363) 53,622
Cash and cash equivalents, beginning of period.............. 61,473 101,471
-------- --------
Cash and cash equivalents, ending of period................. $ 43,110 $155,093
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 10,557 $ 10,446
NON-CASH FINANCING ACTIVITIES:
Cumulative dividends and accretion on redeemable convertible
preferred stock........................................... -- $ 531
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 123
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
financial statements furnished herein include all adjustments necessary for a
fair presentation of the Company's financial position at December 31, 1999 and
the results of its operations and cash flows for the three-month periods ended
December 31, 1998 and 1999. All such adjustments are of a normal recurring
nature. Interim financial statements are prepared on a basis consistent with the
Company's annual financial statements. Results of operations for the three-month
period ending December 31, 1999 are not necessarily indicative of the operating
results that may be expected for the year ending September 30, 2000.
The consolidated balance sheet as of September 30, 1999 has been derived
from the audited financial statements at that date but does not include all of
the information and notes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999 on file with the Securities and Exchange
Commission.
2. INVENTORIES
Inventories consist of computer hardware and software, parts and related
items principally related to the Company's Server Sales and Integration Segment.
Inventories are carried at the lower of cost or market determined by the
first-in, first-out method. The Company's inventories at September 30, 1999 and
December 31, 1999 totaled approximately $1.3 million and $1.4 million,
respectively.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
<S> <C> <C>
Land....................................................... $ 1,997 $ 1,997
Building and building improvements......................... 51,828 53,985
Leasehold improvements..................................... 25,917 27,833
Computer hardware and software and network equipment....... 46,384 51,964
Furniture and equipment.................................... 5,266 5,639
-------- --------
131,392 141,418
-------- --------
Less: Accumulated depreciation and amortization............ (8,739) (12,091)
-------- --------
Property, plant and equipment, net......................... $122,653 $129,327
======== ========
</TABLE>
Included in property, plant and equipment at September 30, 1999 and
December 31, 1999 is $7.1 million of assets held under capital lease
obligations.
F-23
<PAGE> 124
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SENIOR NOTES
In April 1998, the Company completed a $160.0 million debt financing (the
"Senior Notes") consisting of 160,000 units, each unit consisting of a note in
the principal amount of one thousand dollars and one warrant to purchase 14.08
shares of common stock (total of 2,252,800 shares of common stock) at a purchase
price of $3.51 per share. The Senior Notes mature on May 1, 2005. Interest on
the Senior Notes accrues at a rate of 13.0% per annum and is payable
semi-annually in arrears on May 1 and November 1 of each year, commencing
November 1, 1998. Globix deposited $57.0 million with an escrow agent at
closing, which amount, with interest is sufficient to pay, when due, the first
six interest payments under the Senior Notes. The Senior Notes are
collateralized by a first priority security interest in the escrow account. The
Senior Notes are unsecured obligations of the Company and rank pari passu in
right of payment with all existing and future unsecured and unsubordinated
indebtedness and rank senior in right of payment to any future subordinated
indebtedness. In connection with the warrants issued with the Senior Notes, the
Company has assigned an original issue discount of approximately $2.3 million.
In addition, the Company incurred costs associated with the offering of
approximately $6.6 million. These amounts are being amortized over seven years
using the effective interest method. (Also see Note 10).
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
During November, 1999 the Company designated 250,000 shares of its 500,000
shares of authorized Preferred Stock, $0.01 par value, as Series A. At December
31, 1999 there were 80,000 Series A Preferred Shares outstanding and 170,000
Series A Preferred shares reserved in connection with the issuance of the Series
A Preferred Stock.
On December 3, 1999 the Company issued $80.0 million (80,000 shares) in new
Series A Redeemable Convertible Preferred Stock (the "Series A Preferred Stock")
to affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") to expand
the build-out of its SuperPOPs and other facilities. The Series A Preferred
Stock is convertible into common stock at $10.00 per share at any time and may
not be called for redemption by the Company for five years. Under the agreement,
the Series A Preferred Stock is subject to mandatory redemption in 2014 and
yields an annual dividend rate of 7.5% payable quarterly in cash or additional
Series A Preferred Stock at the option of the Company. The holders of the Series
A Preferred Stock have a liquidation preference of $1,000 per share and are
entitled to cumulative dividends.
The Series A Preferred Stock is recorded in the accompanying consolidated
balance sheet outside the stockholders equity section due to its mandatory
redemption feature. The Company incurred approximately $4.25 million of issuance
costs in connection with the Series A Preferred Stock transaction. Such costs
have been recorded as a reduction of the carrying amount of the Series A
Preferred Stock and are being accreted through a charge to additional paid in
capital over the period to the earliest redemption date which is five years. At
December 31, 1999 the Company accrued dividends on the Series A Preferred Stock
in the amount of $0.46 million.
F-24
<PAGE> 125
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SEGMENT INFORMATION
Under the provisions of SFAS No. 131 the Company's activities fall within
two operating segments: the Internet Division and the Server Sales and
Integration Division. The following table sets forth the Company's industry
segment information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues:
Internet.................................................. $ 2,280 $ 6,956
Server Sales and Integration.............................. 3,649 9,189
-------- --------
Consolidated................................................ $ 5,929 $ 16,145
======== ========
Operating income (loss):
Internet.................................................. $ (740) $ (8,618)
Server Sales and Integration.............................. 38 1,043
Corporate................................................. (3,144) (9,388)
-------- --------
Consolidated................................................ $ (3,846) $(16,963)
======== ========
Identifiable assets:
Internet.................................................. $ 25,413 $ 56,899
Server Sales and Integration.............................. 3,614 7,068
Corporate................................................. 155,874 293,750
-------- --------
Consolidated................................................ $184,901 $357,717
======== ========
</TABLE>
The following table sets forth the Company's geographic segment
information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues:
United States............................................. $ 5,929 $ 15,650
Europe.................................................... -- 495
-------- --------
Consolidated................................................ $ 5,929 $ 16,145
======== ========
Operating income (loss):
United States............................................. $ (3,846) $(14,015)
Europe.................................................... -- (2,948)
-------- --------
Consolidated................................................ $ (3,846) $(16,963)
======== ========
Identifiable assets:
United States............................................. $178,064 $337,938
Europe.................................................... 6,837 19,779
-------- --------
Consolidated.............................................. $184,901 $357,717
======== ========
</TABLE>
7. COMPREHENSIVE LOSS
The Company reports comprehensive loss under the provisions of SFAS No.
130. Accumulated other comprehensive loss is reported as a component of
stockholders equity in the consolidated balance sheets.
F-25
<PAGE> 126
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company primarily has two components of comprehensive loss, cumulative
translation adjustments from the Company's operations in foreign countries and
unrealized gains and losses on marketable securities classified as available for
sale.
The components of other comprehensive loss were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
Net loss.................................................... $(7,819) $(20,811)
Other comprehensive income (loss):
Unrealized gain on marketable securities available for
sale...................................................... 337 243
Foreign currency translation adjustment..................... 11 (212)
------- --------
Comprehensive loss.......................................... $(7,471) $(20,780)
======= ========
</TABLE>
8. LOSS PER SHARE
Basic loss per share is calculated by dividing net loss attributable to
common shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted loss per share is calculated by dividing
net loss attributable to common shareholders by the weighted average number of
common shares outstanding, adjusted for potentially dilutive securities. Diluted
loss per share has not been presented since the inclusion of outstanding stock
options and warrants would be antidilutive.
The following table sets forth the computation of basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net Loss.................................................. $ (7,819) $ (20,811)
Less: Cumulative dividends on redeemable convertible
preferred stock......................................... (460)
Less: Accretion of redeemable convertible preferred
stock................................................... (70)
----------- -----------
Net loss attributable to common stockholders.............. $ (7,819) $ (21,341)
=========== ===========
Weighted average shares outstanding, basic and dilutive... 16,560,464 33,557,678
=========== ===========
Basic and diluted loss per share.......................... $ (0.47) $ (0.64)
=========== ===========
</TABLE>
9. STOCK SPLITS
On December 10, 1999 the Company announced a two-for-one stock split of its
outstanding shares of common stock which was paid on December 30, 1999. On
January 10, 2000, the Company announced an additional two-for-one stock split of
its outstanding shares of common stock, payable on January 31, 2000.
Stockholders' equity has been restated to give retroactive recognition to both
stock splits for all periods presented in the accompanying financial statements
by reclassifying from additional paid-in-capital to common stock the par value
of the additional shares arising from the splits. In addition all references to
number of shares, per share amounts and stock option data have been restated to
reflect the stock splits.
10. SUBSEQUENT EVENTS
On January 28, 2000, the Company announced that it has entered into an
agreement to sell $600.0 million 12.5% senior notes due 2010 in a private
placement to a group of initial purchasers.
F-26
<PAGE> 127
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 28, 2000, the Company also announced that it intends to commence
a tender offer to purchase for cash any and all of its outstanding 13% senior
notes due 2005, $160.0 million in principal amount. The purchase price in the
tender offer will be 106.5% of the principal amount, plus accrued and unpaid
interest. In connection with the offering of 12.5% senior notes, the Company has
received the consent of the beneficial holders of a majority of the outstanding
13% senior notes. In addition, these beneficial holders have agreed to
irrevocably instruct any parties through which they hold their beneficial
interests to provide their consent to the execution and delivery of a
supplemental indenture reflecting these amendments to the indenture. The Company
will commence the tender offer only if it receives a supplemental indenture
executed by the trustee. The closing of the tender is conditioned upon the
closing of the offering for the 12.5% senior notes. The tender and related
redemption of the outstanding 13% senior notes is expected to result in a one
time charge to earnings of approximately $17.6 million which will be recorded as
an extraordinary item in the statement of operations during the fiscal second
quarter of 2000.
On February 8, 1999, the Company closed on its offering for $600.0 million
12.5% senior notes due 2010 resulting in net proceeds of approximately $582.0
million (exclusive of transaction costs).
F-27
<PAGE> 128
GLOBIX LOGO
Globix Corporation
Exchange Offer for $600,000,000
12 1/2% SENIOR NOTES DUE 2010
----------------------------
PROSPECTUS
, 2000
----------------------------
EXCHANGE AGENT:
HSBC BANK USA
140 BROADWAY -- LEVEL A
NEW YORK, NEW YORK 10005-1180
ATTENTION: CORPORATE TRUST DEPARTMENT
TEL: (212) 658-5931 FAX: (212) 658-2292
<PAGE> 129
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by Section 145 of the Delaware General Corporation Law,
Globix's Certificate of Incorporation includes a provision that eliminates the
personal liability of its directors to Globix or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Bylaws of Globix
provide that the Registrant shall indemnify its directors and officers under
certain circumstances, including those circumstances in which indemnification
would otherwise be discretionary, and Globix is required to advance expenses to
its officers and directors as incurred in connection with proceedings against
them for which they may be indemnified.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Incorporation of Globix, as amended(9)
3.2 By-laws of Globix, as amended.(7)
</TABLE>
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Incorporation of Globix, as amended.(9)
3.2 By-laws of Globix, as amended.(7)
4.1 Specimen Stock Certificate.(2)
4.2 Form of Underwriter's Warrant issued to Rickel & Associates,
Inc.(2)
4.6 Form of Warrant to purchase Common Stock expiring May 1,
2005.(5)
4.7 Specimen Series A 7.5% Convertible Preferred Stock
Certificate.(13)
4.8 Certificate of Designations, Preferences and Rights of
Series A 7.5% Convertible Preferred Stock Certificate.(13)
4.9 Indenture between Globix and HSBC Bank USA, as Trustee,
dated as of February 8, 2000.(15)
4.10 Form of 12.5% Senior Note due February 1, 2020.(15)
5 Opinion of Milberg Weiss Bershad Hynes & Lerach LLP.
10.1 Purchase Agreement between Globix and ING Baring (U.S.)
Securities, Inc., dated April 24, 1998.(5)
10.2 Warrant Agreement between Globix and Marine Midland Bank, as
Warrant Agent, dated as of April 30, 1998.(5)
10.4 Warrant Registration Rights Agreement between Globix and ING
Baring, (U.S.) Securities, dated as of April 30, 1998.(5)
10.6 1995 Stock Option Plan, adopted September 29, 1995.(1)
10.7 1998 Stock Option Plan, adopted April 16, 1998.(6)
10.8 Employment Agreement between Marc H. Bell and Globix, dated
as of April 10, 1998.(8)
10.9 Agreement of Lease between Globix and Puck Associates, dated
as of July 23, 1996.(3)
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.10 Agreement between Globix, and Cisco Systems Capital
Corporation granting credit approval for $1,000,000 for
leasing transactions, dated as of December 15, 1997.(4)
10.11 Lease between Mission Plaza LLC and Globix dated as of July
24, 1998.(8)
10.12 First Amendment to Lease by and between Mission Plaza LLC
and Globix dated October 8, 1998 and effective as of July
24, 1998.(8)
10.13 Lease by and between Corston Holdings Limited, Globix
Limited and Globix dated October 15, 1998.(8)
10.14 Deed of Guaranty between Bank Leumi (UK) Plc, Corston
Holdings Limited, and Globix Limited dated October 15,
1998.(8)
10.15 IRU Agreement between Qwest Communications Corporation and
Globix dated as of October 5, 1998.(8)
10.16 Amendment to Marc H. Bell Employment Agreement, dated as of
March 2, 1999.(9)
10.17 Stock Option Agreement between Globix and Marc H. Bell,
dated as of March 26, 1999.(9)
10.18 1999 Stock Option Plan, adopted April 23, 1999.(10)
10.19 Employment Agreement between Robert B. Bell and Globix,
dated as of July 21, 1999.(11)
10.20 Purchase Agreement between Globix Corporation and HMTF-IV
Acquisition Corp. dated as of November 5, 1999.(12)
10.21 Registration Rights Agreement for 12.5% Senior Notes, dated
as of February 8, 2000.(14)
10.23 Purchase Agreement for 12.5% Senior Notes, dated January 28,
2000.(14)
23.1 Consent of Milberg Weiss Bershad Hynes & Lerach LLP
(included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.*
99.01 Form of Letter of Transmittal for notes.*
99.02 Form of Notice of Guaranteed Delivery for notes.*
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to Globix's Registration Statement on Form SB-2
(File No. 33-98978) filed November 3, 1995.
(2) Incorporated by reference to Amendment No. 2 to Globix's Registration
Statement filed January 23, 1996, declared effective January 24, 1996.
(3) Incorporated by reference to Globix's Annual Report on Form 10-KSB/A for
the year ended September 30, 1996.
(4) Incorporated by reference to Globix's Annual Report on Form 10-KSB for the
year ended September 30, 1997.
(5) Incorporated by reference to Globix's Report on Form 8-K filed May 11,
1998.
(6) Incorporated by reference to Globix's Proxy Statement on Schedule 14A filed
on March 16, 1998.
(7) Incorporated by reference to Amendment No. 1 filed August 7, 1998 to
Globix's Registration Statement (File No. 333-57993) filed June 29, 1998.
(8) Incorporated by reference to Globix's Annual Report on Form 10-KSB filed
December 29, 1998.
(9) Incorporated by reference to Globix's Quarterly Report on Form 10-QSB filed
May 17, 1999.
(10) Incorporated by reference to Globix's Proxy Statement on Schedule 14A filed
on March 24, 1999.
(11) Incorporated by reference to Globix's Quarterly Report on Form 10-QSB filed
August 16, 1999.
(12) Incorporated by reference to Globix's Report on Form 8-K filed November 29,
1999.
(13) Incorporated by reference to Globix's Annual Report on Form 10-K filed
December 29, 1999.
(14) Incorporated by reference to Globix's Report on Form 8-K filed February 14,
2000.
<PAGE> 131
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 28th day of March, 2000.
GLOBIX CORPORATION
By: /s/ MARC H. BELL
------------------------------------
Marc H. Bell
Chairman, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Marc H.
Bell his true and lawful attorney-in-fact, with the power of substitution, for
him in any and all capacities, to sign amendments to this Registration Statement
on Form S-4, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: March 28, 2000 /s/ MARC H. BELL
---------------------------------------------------
Marc H. Bell
Chairman of the Board, President
and Chief Executive Officer
Date: March 28, 2000 /s/ BRIAN L. REACH
---------------------------------------------------
Brian L. Reach
Senior Vice President
and Chief Financial Officer
Date: March 28, 2000 /s/ SHAWN P. BROSNAN
---------------------------------------------------
Shawn P. Brosnan
Vice President, Corporate Controller
and Chief Accounting Officer
Date: March , 2000 ---------------------------------------------------
Robert B. Bell
Executive Vice President, Business
Development and Director
</TABLE>
<PAGE> 133
<TABLE>
<S> <C>
Date: March 28, 2000 /s/ ANTHONY ST. JOHN
---------------------------------------------------
Anthony St. John
Vice President, Business Development
and Director
Date: March 28, 2000 /s/ MARTIN FOX
---------------------------------------------------
Martin Fox
Director
Date: March 28, 2000 /s/ JACK FURST
---------------------------------------------------
Jack Furst
Director
Date: March , 2000 ---------------------------------------------------
Michael Levitt
Director
Date: March 28, 2000 /s/ SID PATERSON
---------------------------------------------------
Sid Paterson
Director
Date: March 28, 2000 /s/ TSUYOSHI SHIRAISHI
---------------------------------------------------
Tsuyoshi Shiraishi
Director
Date: March 28, 2000 /s/ RICHARD VIDEBECK
---------------------------------------------------
Richard Videbeck
Director
</TABLE>
<PAGE> 134
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Incorporation of Globix, as amended.(9)
3.2 By-laws of Globix, as amended.(7)
4.1 Specimen Stock Certificate.(2)
4.2 Form of Underwriter's Warrant issued to Rickel & Associates,
Inc.(2)
4.6 Form of Warrant to purchase Common Stock expiring May 1,
2005.(5)
4.7 Specimen Series A 7.5% Convertible Preferred Stock
Certificate.(13)
4.8 Certificate of Designations, Preferences and Rights of
Series A 7.5% Convertible Preferred Stock Certificate.(13)
4.9 Indenture between Globix and HSBC Bank USA, as Trustee,
dated as of February 8, 2000.(15)
4.10 Form of 12.5% Senior Note due February 1, 2020.(15)
5 Opinion of Milberg Weiss Bershad Hynes & Lerach LLP.
10.1 Purchase Agreement between Globix and ING Baring (U.S.)
Securities, Inc., dated April 24, 1998.(5)
10.2 Warrant Agreement between Globix and Marine Midland Bank, as
Warrant Agent, dated as of April 30, 1998.(5)
10.4 Warrant Registration Rights Agreement between Globix and ING
Baring, (U.S.) Securities, dated as of April 30, 1998.(5)
10.6 1995 Stock Option Plan, adopted September 29, 1995.(1)
10.7 1998 Stock Option Plan, adopted April 16, 1998.(6)
10.8 Employment Agreement between Marc H. Bell and Globix, dated
as of April 10, 1998.(8)
10.9 Agreement of Lease between Globix and Puck Associates, dated
as of July 23, 1996.(3)
10.10 Agreement between Globix, and Cisco Systems Capital
Corporation granting credit approval for $1,000,000 for
leasing transactions, dated as of December 15, 1997.(4)
10.11 Lease between Mission Plaza LLC and Globix dated as of July
24, 1998.(8)
10.12 First Amendment to Lease by and between Mission Plaza LLC
and Globix dated October 8, 1998 and effective as of July
24, 1998.(8)
10.13 Lease by and between Corston Holdings Limited, Globix
Limited and Globix dated October 15, 1998.(8)
10.14 Deed of Guaranty between Bank Leumi (UK) Plc, Corston
Holdings Limited, and Globix Limited dated October 15,
1998.(8)
10.15 IRU Agreement between Qwest Communications Corporation and
Globix dated as of October 5, 1998.(8)
10.16 Amendment to Marc H. Bell Employment Agreement, dated as of
March 2, 1999.(9)
10.17 Stock Option Agreement between Globix and Marc H. Bell,
dated as of March 26, 1999.(9)
10.18 1999 Stock Option Plan, adopted April 23, 1999.(10)
10.19 Employment Agreement between Robert B. Bell and Globix,
dated as of July 21, 1999.(11)
10.20 Purchase Agreement between Globix Corporation and HMTF-IV
Acquisition Corp. dated as of November 5, 1999.(12)
10.21 Registration Rights Agreement for 12.5% Senior Notes, dated
as of February 8, 2000.(14)
10.23 Purchase Agreement for 12.5% Senior Notes, dated January 28,
2000.(14)
</TABLE>
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
23.1 Consent of Milberg Weiss Bershad Hynes & Lerach LLP
(included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.*
99.01 Form of Letter of Transmittal for notes.*
99.02 Form of Notice of Guaranteed Delivery for notes.*
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to Globix's Registration Statement on Form SB-2
(File No. 33-98978) filed November 3, 1995.
(2) Incorporated by reference to Amendment No. 2 to Globix's Registration
Statement filed January 23, 1996, declared effective January 24, 1996.
(3) Incorporated by reference to Globix's Annual Report on Form 10-KSB/A for
the year ended September 30, 1996.
(4) Incorporated by reference to Globix's Annual Report on Form 10-KSB for the
year ended September 30, 1997.
(5) Incorporated by reference to Globix's Report on Form 8-K filed May 11,
1998.
(6) Incorporated by reference to Globix's Proxy Statement on Schedule 14A filed
on March 16, 1998.
(7) Incorporated by reference to Amendment No. 1 filed August 7, 1998 to
Globix's Registration Statement (File No. 333-57993) filed June 29, 1998.
(8) Incorporated by reference to Globix's Annual Report on Form 10-KSB filed
December 29, 1998.
(9) Incorporated by reference to Globix's Quarterly Report on Form 10-QSB filed
May 17, 1999.
(10) Incorporated by reference to Globix's Proxy Statement on Schedule 14A filed
on March 24, 1999.
(11) Incorporated by reference to Globix's Quarterly Report on Form 10-QSB filed
August 16, 1999.
(12) Incorporated by reference to Globix's Report on Form 8-K filed November 29,
1999.
(13) Incorporated by reference to Globix's Annual Report on Form 10-K filed
December 29, 1999.
(14) Incorporated by reference to Globix's Report on Form 8-K filed February 14,
2000.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement, on Form S-4 of our report dated November 18, 1999
(except with respect to the matters discussed in the second and third paragraphs
of note 12 to the Consolidated Financial Statements as to which the date is
January 31, 2000) included herein and to all references to our Firm included in
this registration statement.
ARTHUR ANDERSEN LLP
March 28, 2000
New York, New York
<PAGE> 1
EXHIBIT 99.01
LETTER OF TRANSMITTAL
GLOBIX CORPORATION
OFFER TO EXCHANGE ITS
NEW 12 1/2% SENIOR NOTES DUE 2010
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
12 1/2% SENIOR NOTES DUE 2010
PURSUANT TO THE PROSPECTUS
DATED MARCH , 2000
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 2000 (UNLESS EXTENDED BY
GLOBIX CORPORATION IN ITS SOLE DISCRETION) (SUCH TIME AND SUCH DATE,
AND AS SUCH TIME AND DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
If you desire to accept the Exchange Offer (as defined below), this Letter
of Transmittal should be completed, signed, and submitted to:
The Exchange Agent:
HSBC BANK USA
By Mail, Overnight Delivery or Hand:
HSBC Bank USA
140 Broadway -- Level A
New York, NY 10005-1180
Attn: Corporate Trust Department
(Globix Corporation, 12 1/2% Senior Notes due 2010)
To Confirm by Telephone or for Information:
(212) 658-5931
Facsimile Transmissions:
(212) 658-2292
(Originals of all documents sent by facsimile should be sent promptly by
hand, overnight courier or registered or certified mail.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders of
Old Notes are to be made by book-entry transfer to an account maintained
<PAGE> 2
by HSBC Bank USA (the "Exchange Agent") at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus. See Instruction
1 hereto. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
2
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to Globix Corporation, a Delaware
corporation (the "Company"), the aggregate principal amount of the Company's
12 1/2% Senior Notes due 2010 (the "Old Notes") described in Box 1 below, in
exchange for a like aggregate principal amount of the Company's new 12 1/2%
Senior Notes due 2010 (the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), upon the terms and
subject to the conditions set forth in the Prospectus dated , 2000
(as the same may be amended or supplemented from time to time, the
"Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitutes the "Exchange
Offer").
Subject to, and effective upon, the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
HSBC Bank USA as the Exchange Agent (the "Exchange Agent") as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting as
agent of the Company in connection with the Exchange Offer) with respect to the
tendered Old Notes, with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest), subject only
to the right of withdrawal described in the Prospectus, to (i) deliver
Certificates for Old Notes to the Company together with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company,
upon receipt by the Exchange Agent, as the undersigned's agent, of the New Notes
to be issued in exchange for such Old Notes, (ii) present Certificates for such
Old Notes for transfer, and to transfer the Old Notes on the books of the
Company, and (iii) receive for the account of the Company all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed in Box 1 below, if they are not already set
forth below, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate box below.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer -- Procedures for Tendering
Old Notes" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
3
<PAGE> 4
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below (Box 7), the undersigned hereby directs that the New Notes
be issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such New Notes be credited to the account indicated
below maintained at DTC. If applicable, substitute Certificates representing Old
Notes not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Old Notes, will be
credited to the account indicated below maintained at DTC. Similarly, unless
otherwise indicated under "Special Delivery Instructions" (Box 8), please
deliver New Notes to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (i) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (ii) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (iii) THE UNDERSIGNED
HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE
RECEIVED IN THE EXCHANGE OFFER, AND (iv) IF THE UNDERSIGNED IS NOT A BROKER-
DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES. BY
TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF
TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND
AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE
DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO
THIRD PARTIES, THAT SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES
(SUCH A BROKER-DEALER WHICH IS TENDERING OLD NOTES IS HEREIN REFERRED TO AS A
"PARTICIPATING BROKER-DEALER") AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR
SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT
IN CONNECTION WITH ANY RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH PARTICIPATING BROKER-DEALER
WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF
THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER IN CONNECTION WITH RESALES
OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE SUCH OLD NOTES WERE
ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD ENDING 180
DAYS AFTER THE EXPIRATION DATE OR, IF EARLIER, WHEN ALL SUCH NEW NOTES HAVE BEEN
DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH
PARTICIPATING BROKER-DEALER, BY TENDERING SUCH OLD NOTES AND EXECUTING THIS
LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF
THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY
STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY
MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
4
<PAGE> 5
Each New Note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Old Note surrendered in
exchange for such New Note or, if no such interest has been paid or duly
provided for on such Old Note, from February 8, 2000, the date of issuance of
the Old Notes. Holders of the Old Notes whose Old Notes are accepted for
exchange will not receive accrued interest on such Old Notes for any period from
and after the last Interest Payment Date to which interest has been paid or duly
provided for on such Old Notes prior to the original issue date of the New Notes
or, if no such interest has been paid or duly provided for, will not receive any
accrued interest on such Old Notes, and will be deemed to have waived the right
to receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after February 8, 2000.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except
pursuant to the withdrawal rights set forth in the Prospectus, this tender is
irrevocable.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
THE BOXES BELOW AND FOLLOW THE INSTRUCTIONS BEGINNING ON PAGE 11 HEREOF.
ALL TENDERING HOLDERS COMPLETE THIS BOX 1:
BOX 1
- --------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
IF BLANK, PLEASE PRINT NAME(S) AND
ADDRESS(ES) OF REGISTERED HOLDER(S), CERTIFICATE PRINCIPAL AMOUNT
EXACTLY AS NAME(S) APPEAR(S) ON OLD NUMBER(S) OF PRINCIPAL AMOUNT OF OLD NOTES
NOTE CERTIFICATE(S): OLD NOTES* OF OLD NOTES TENDERED**
<S> <C> <C> <C>
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total Principal Total Principal
Amount Amount Tendered
$ $
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof. All Old Notes held shall be deemed tendered
unless a lesser number is specified in this column. See Instruction 4.
- --------------------------------------------------------------------------------
5
<PAGE> 6
BOX 2
BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1 BELOW)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
- --------------------------------------------------------------------------------
DTC Account Number
- --------------------------------------------------------------------------------
Transaction Code Number
- --------------------------------------------------------------------------------
BOX 3
NOTICE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 1 BELOW)
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holders(s)
- --------------------------------------------------------------------------------
Window Ticket Number (if any)
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
- ---------------------------------------------------------------
Name of Institution which Guaranteed Delivery
- --------------------------------------------------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
- ----------------------------------------------------
Name of Tendering Institution
- --------------------------------------------------------------------------------
DTC Account Number
- --------------------------------------------------------------------------------
Transaction Code Number
- --------------------------------------------------------------------------------
BOX 4
RETURN OF NON-EXCHANGED OLD NOTES TENDERED BY BOOK-ENTRY TRANSFER
(SEE INSTRUCTIONS 4 AND 6 BELOW)
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
6
<PAGE> 7
BOX 5
PARTICIPATING BROKER-DEALER
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF
THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
7
<PAGE> 8
BOX 6
TENDERING HOLDER SIGNATURE
HOLDER(S) SIGN HERE
- --------------------------------------------------------------------------------
(SEE INSTRUCTIONS 2, 5 AND 6 BELOW)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 IN BOX 9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON
CERTIFICATE(S) FOR THE OLD NOTES HEREBY TENDERED OR ON A SECURITY POSITION
LISTING, OR BY A PERSON(S) AUTHORIZED TO BECOME THE REGISTERED HOLDER(S) BY
ENDORSEMENTS AND DOCUMENTS TRANSMITTED HEREWITH (INCLUDING SUCH OPINIONS OF
COUNSEL, CERTIFICATIONS AND OTHER INFORMATION AS MAY BE REQUIRED BY THE COMPANY
OR THE TRUSTEE FOR THE OLD NOTES TO COMPLY WITH THE RESTRICTIONS ON TRANSFER
APPLICABLE TO THE OLD NOTES). IF SIGNATURE IS BY AN ATTORNEY-IN-FACT, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, OFFICER OF A CORPORATION OR ANOTHER ACTING IN
A FIDUCIARY CAPACITY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH THE SIGNER'S
FULL TITLE. SEE INSTRUCTION 5 BELOW.
--------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date
- -----------------------, 2000
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number(s))
-----------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1, 2 AND 5 BELOW)
--------------------------------------
AUTHORIZED SIGNATURE
Name
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Date
- -----------------------, 2000
Capacity or Title
- --------------------------------------------------------------------------------
Name of Firm
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- --------------------------------------------------------------------------------
8
<PAGE> 9
BOX 7
------------------------------------------------------------
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6 BELOW)
To be completed ONLY if the New Notes are to be issued in the name of
someone other than the registered holder of the Old Notes whose name(s)
appear(s) above.
Issue New Notes to:
Name
----------------------------------------------------
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
------------------------------------------------------------
BOX 8
------------------------------------------------------------
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6 BELOW)
To be completed ONLY if New Notes are to be sent to someone other
than the registered holder of the Old Notes whose name(s) appear(s) above,
or to such registered holder(s) at an address other than that shown above.
Mail New Notes to:
Name
----------------------------------------------------
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
------------------------------------------------------------
9
<PAGE> 10
BOX 9
SUBSTITUTE FORM W-9
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9 BELOW)
SIGN THIS SUBSTITUTE FORM W-9 IN ADDITION TO THE SIGNATURE(S) REQUIRED IN BOX 6
PAYER'S NAME: HSBC BANK USA
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- Please provide your TIN TIN:
FORM W-9 (either your social security -------------------------------
number or employer identification
number) in the box to the right
and certify by signing and dating
below.
----------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART II--AWAITING TIN [ ]
INTERNAL REVENUE SERVICE SIGN THIS FORM AND THE CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION
NUMBER BELOW
PAYER'S REQUEST FOR TAXPAYER ------------------------------------------------------------------------
IDENTIFICATION NUMBER (TIN) AND
CERTIFICATION PART III--EXEMPT [ ]
See enclosed Guidelines for additional information and SIGN THIS FORM.
------------------------------------------------------------------------
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding because (i) I am exempt from
backup withholding, or (ii) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii)
the IRS has notified me that I am no longer subject to backup
withholding.
(3) Any other information provided on this form is true and correct.
------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS--You must cross out item (iii) in Part (2)
above if you have been notified by the IRS that you are subject to
backup withholding because of underreporting interest or dividends on
your tax return and you are no longer subject to backup withholding.
Signature: ------------------------------------------- Date:
-------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments made to me on account of the New Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature
- ------------------------------------------------------ Date
---------------------------------, 2000
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
FOR ADDITIONAL INFORMATION.
10
<PAGE> 11
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
GENERAL
Please do not send Certificates for Old Notes directly to the Company. Your
Old Note Certificates, together with your signed and completed Letter of
Transmittal and any required supporting documents should be mailed in the
enclosed addressed envelope, or otherwise delivered, to the Exchange Agent, at
either of the addresses indicated on the first page hereof. THE METHOD OF
DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES
This Letter of Transmittal is to be completed if either (a) Certificates
are to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at its address set forth herein on or prior to
5:00 p.m., New York City time, on the Expiration Date. Old Notes must be
tendered in whole or in part in the principal amount of $1,000 or integral
multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer -- Procedures
for Tendering Old Notes" in the Prospectus and by completing Box 3 hereof.
Pursuant to such procedures: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made available
by the Company, must be received by the Exchange Agent on or prior to the
Expiration Date; and (iii) the Certificates (or a book-entry confirmation (as
defined in the Prospectus)) representing all tendered Old Notes, in proper form
for transfer, together with a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in "The
Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein, "Eligible Institution" means a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor
institution," including (as such terms are defined therein) (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association, that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program.
11
<PAGE> 12
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES
No signature guarantee on this Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in
DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s)
has completed either the box entitled "Special Exchange Instructions"
(Box 7) or the box entitled "Special Delivery Instructions" (Box 8)
above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal (Box 6). See Instruction 5.
3. INADEQUATE SPACE
If the space provided in the box captioned "Description of Old Notes" is
inadequate, the Certificate number(s) and/or the principal amount of Old Notes
and any other required information should be listed on a separate signed
schedule which should be attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS
Tenders of Old Notes will be accepted only in the principal amount of
$1,000 and integral multiples thereof. If less than all the Old Notes evidenced
by any Certificate submitted are to be tendered, fill in the principal amount of
Old Notes which are to be tendered in Box 1 under the column "Principal Amount
of Old Notes Tendered". In such case, new Certificate(s) for the remainder of
the Old Notes that were evidenced by your Old Notes Certificate(s) will only be
sent to the holder of the Old Notes, promptly after the Expiration Date. All Old
Notes represented by Certificates delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at its address set forth above or in the Prospectus on or prior
to the Expiration Date. Any such notice of withdrawal must specify the name of
the person who tendered the Old Notes to be withdrawn, the aggregate principal
amount of Old Notes to be withdrawn, and (if Certificates for such Old Notes
have been tendered) the name of the registered holder of the Old Notes as set
forth on the Certificate for the Old Notes, if different from that of the person
who tendered such Old Notes. If Certificates for the Old Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Old Notes, the tendering holder
must submit the serial numbers shown on the particular Certificates for the Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes," the notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawal of Old Notes, in which case a notice of withdrawal will be effective
if delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Old Notes may not be rescinded. Old
Notes properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer -- Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be
12
<PAGE> 13
under any duty to give any notification of any irregularities in any notice of
withdrawal or incur any liability for failure to give such notification. Any Old
Notes which have been tendered but which are withdrawn will be returned to the
holder thereof without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS
If this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by the Company, must
submit proper evidence satisfactory to the Company, in its sole discretion, of
such persons' authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered holder(s). However, if New Notes are
to be issued in the name of a person other than the registered holder(s),
signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Old Notes may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
If New Notes are to be issued in the name of a person other than the signer
of this Letter of Transmittal, or if New Notes are to be sent to someone other
than the signer of this Letter of Transmittal or to an address other than that
shown above, the appropriate boxes on this Letter of Transmittal should be
completed (Box 7 and 8). Certificates for Old Notes not exchanged will be
returned by mail or, if tendered by book-entry transfer, by crediting the
account indicated above maintained at DTC. See Instruction 4.
7. DETERMINATION OF VALIDITY
The Company will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Old Notes, which determination shall be
final and binding on all parties. The Company reserves the absolute right to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer -- Certain Conditions to the
Exchange Offer" or any conditions or irregularity in any tender of Old Notes of
any particular holder whether or not similar conditions or irregularities are
waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the
13
<PAGE> 14
Company, any affiliates or assigns of the Company, the Exchange Agent, nor any
other person shall be under any duty to give notification of any irregularities
in tenders or incur any liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES
Questions and requests for assistance may be directed to the Exchange Agent
at its address and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9
For U.S. Federal income tax purposes, holders are required, unless an
exemption applies, to provide the Exchange Agent with such holder's correct
taxpayer identification number ("TIN") on Substitute Form W-9 of this Letter of
Transmittal (Box 9) and certify, under penalties of perjury, that such number is
correct and he or she is not subject to backup withholding. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Old Notes exchanged
pursuant to the Exchange Offer, or with respect to New Notes following the
Exchange Offer, may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 (Box 9) may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below Substitute Form W-9 in order to avoid backup
withholding. Notwithstanding that the box in Part 2 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent.
The holder is required to give the Exchange Agent the TIN (i.e., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below and check the box in Part 3 of
Box 9 for "exempt", to avoid possible erroneous backup withholding. A foreign
person may qualify as an exempt recipient by submitting a properly completed IRS
Form W-8, signed under penalties of perjury, attesting to that holder's exempt
status. Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES
If any Certificate(s) representing Old Notes have been lost, destroyed or
stolen, the holder should promptly notify the Exchange Agent. The holder will
then be instructed as to the steps that must be taken in order to replace the
Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer tax (whether imposed on
14
<PAGE> 15
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
15
<PAGE> 16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN -- The Taxpayer Identification Number for most individuals is their
social security number. Refer to the following chart to determine the
appropriate number:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------------------
<C> <S> <C>
1. individual The individual
2. Two or more individuals (joint) The actual owner of
the account, or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor the Minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-
trust (grantor is also trustee) trustee(1)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust
under State law
5. Sole proprietorship The owner(3)
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------------------------------------
<C> <S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate or pension Legal entity(4)
trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or
nominee
12. Account with the Department of The public entity
Agriculture
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
B. EXEMPT PAYEES -- The following lists exempt payees. If you are exempt,
you must nonetheless complete the form and provide your TIN in order to
establish that you are exempt. Check the box in Part 3 of the form, sign and
date the form.
For this purpose, Exempt Payees include: (1) A corporation; (2) An
organization exempt from tax under section 501(a), or an individual retirement
plan (IRA) or a custodial account under section 403(b)(7); (3) The United States
or any of its agencies or instrumentalities; (4) A state, the District of
Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities; (5) A foreign government or any of its
political subdivisions, agencies or instrumentalities; (6) An international
organization or any of its agencies or instrumentalities; (7) A foreign central
bank of issue; (8) A dealer in securities or commodities required to register in
the U.S. or a possession of the U.S.; (9) A real estate investment trust; (10)
An entity or person registered at all times during the tax year under the
Investment Company Act of 1940; (11) A common trust fund operated by a bank
under section 584(a); (12) A financial institution.
C. OBTAINING A NUMBER -- If you do not have a taxpayer identification
number or you do not know your number, obtain Form SS-5, application for a
Social Security Number, or Form SS-4, Application for Employer Identification
Number, at the local office of the Social Security Administration or the
Internal Revenue Service and apply for a number.
D. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers who
must report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not payees are required to
file tax returns.
16
<PAGE> 17
Payers must generally withhold 31% of taxable interest, dividend, and certain
other payments to a payee who does not furnish a taxpayer identification number.
Certain penalties may also apply.
E. PENALTIES
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
17
<PAGE> 1
EXHIBIT 99.02
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
12 1/2% SENIOR NOTES DUE 2010
OF
GLOBIX CORPORATION
THIS NOTICE OF GUARANTEED DELIVERY, OR ONE SUBSTANTIALLY EQUIVALENT TO THIS
FORM, MUST BE USED TO ACCEPT THE EXCHANGE OFFER (AS DEFINED BELOW) IF (I)
CERTIFICATES FOR THE COMPANY'S (AS DEFINED BELOW) 12 1/2% SENIOR NOTES DUE 2010
(THE "OLD NOTES") ARE NOT IMMEDIATELY AVAILABLE, (II) THE OLD NOTES, THE LETTER
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS CANNOT BE DELIVERED TO HSBC BANK
USA (THE "EXCHANGE AGENT") ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE
PROSPECTUS REFERRED TO BELOW) OR (III) THE PROCEDURES FOR DELIVERY BY BOOK-ENTRY
TRANSFER CANNOT BE COMPLETED ON A TIMELY BASIS. THIS NOTICE OF GUARANTEED
DELIVERY MAY BE DELIVERED BY HAND, OVERNIGHT COURIER OR MAIL, OR TRANSMITTED BY
FACSIMILE TRANSMISSION, TO THE EXCHANGE AGENT. SEE "THE EXCHANGE
OFFER -- PROCEDURES FOR TENDERING OLD NOTES" IN THE PROSPECTUS.
The Exchange Agent for the Exchange Offer is:
HSBC BANK USA
By Mail, Overnight Delivery or Hand:
HSBC BANK USA
140 Broadway -- Level A
New York, New York 10005-1180
Attn: Corporate Trust Department
(GLOBIX CORPORATION, 12 1/2% SENIOR NOTES DUE 2010)
To Confirm by Telephone or for Information:
(212) 658-5931
Facsimile Transmissions:
(212) 658-2292
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Globix Corporation, a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated , 2000 (as the same may be amended or
supplemented from time to time, the "Prospectus") and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Procedures for Tendering Old Notes."
DESCRIPTION OF OLD NOTES TENDERED
Name(s), Address(es) and Area Code(s) and Telephone Number(s) of Registered
Holder(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Certificate Number(s) (if available):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Aggregate Principal Amount Tendered: $
Signature(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If Old Notes will be tendered by book-entry transfer, please provide the
following information:
Name of Tendering Institution:
- --------------------------------------------------------------------------------
DTC Account Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
2
<PAGE> 3
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein) (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association, that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program (each of the foregoing being referred to as an
"Eligible Institution"), hereby guarantees to deliver to the Exchange Agent, at
its address set forth above, either the Old Notes tendered hereby in proper form
for transfer, or confirmation of the book-entry transfer of such Old Notes to
the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant
to the procedures for book-entry transfer set forth in the Prospectus, in either
case together with one or more properly completed and duly executed Letter(s) of
Transmittal (or facsimile thereof) and any other required documents within three
New York Stock Exchange trading days after the date of execution of this Notice
of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
<TABLE>
<S> <C>
Name of Firm: ---------------------------------- Authorized Signature: ---------------------------
Address: ----------------------------------------- Name (Please Print): ---------------------------
- --------------------------------------------------- Capacity or Title: -------------------------------
Area Code and Telephone Number: Date: --------------------------------------------
- -----------------------------
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
No person has been authorized to give any information or to make any
representations in connection with this Exchange Offer other than those
contained in the Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange of Old Notes
for New Notes made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
securities to which it relates. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy such securities in any circumstances
in which such offer or solicitation is unlawful.
3
